Global Liquidity Update with Michael Howell: The Case for a U.S. Gold Revaluation Is Building
Mar 8, 2025
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Michael Howell, founder of CrossBorder Capital and author of Capital Wars, dives deep into global liquidity trends. He argues that M2 is becoming obsolete and emphasizes asset-based liquidity as a crucial metric. Howell discusses the U.S. debt spiral and the pressure on the Fed to resume quantitative easing, while also spotlighting China's growing influence. A gold revaluation emerges as a potential solution to inject liquidity into the market. Ultimately, he posits that liquidity—not interest rates—will dictate market movements.
The shift from M2 to an asset-based liquidity index reflects a more accurate assessment of monetary flows in today's financial markets.
A potential U.S. gold revaluation could alleviate liquidity issues and lower debt service costs, enhancing economic recovery amidst rising debt levels.
Deep dives
Understanding Liquidity Metrics
The podcast discusses the differences between global liquidity measures, specifically contrasting global M2 and an asset-based liquidity index. Global M2, which counts retail deposit liabilities, is deemed an outdated measure due to the shift towards financial markets, where liquidity flows occur primarily through asset-based transactions. In contrast, the asset-based index captures actual credit levels in financial institutions, making it a more accurate reflection of monetary flows. The episode emphasizes that understanding these distinctions is crucial for analyzing real financial activities in today's economy.
Current Global Liquidity Trends
The conversation highlights recent trends in global liquidity, indicating a slowdown in liquidity creation, termed an 'air pocket'. This decrease in liquidity is leading to a notable shift in investment behavior, with investors moving away from risk assets and favoring safer options. The discussion illustrates this shift through a chart showing the declining risk exposure of U.S. investors, which has significantly dropped over recent months, especially affecting assets such as cryptocurrencies. Furthermore, the episode suggests that global liquidity is plateauing, making it essential for market participants to navigate these changing dynamics.
Impact of Economic Policies on Markets
Insights into the effects of economic policies on global liquidity and market stability are presented, particularly regarding the Federal Reserve's actions and fiscal strategies. The Fed's decision to tighten monetary policy may create liquidity shortages, pressuring financial markets as seen in increasing SOFR rates compared to Fed funds rates. Additionally, the podcast discusses the potential impacts of a slowing economy, linked to both U.S. and Chinese monetary conditions, in shaping market expectations. The discussion underscores that these economic maneuvers could lead to tighter financial conditions, necessitating a careful watch over upcoming policy decisions.
Future Outlook and Gold's Role
The podcast concludes with a speculation on potential future economic strategies like gold revaluation, which could provide significant liquidity boosts. It reasons that such a move could significantly enhance the Treasury General Account, reducing the need for coupon issuance and thus lowering yields. The thought process suggests that if the U.S. government can manage to decrease debt service costs, it will have long-term positive implications for economic recovery and liquidity. Overall, the dialogue hints at various avenues through which the administration might attempt to stabilize and boost both the bond and cryptocurrency markets in the coming years.
In this episode, Nik welcomes back Michael Howell, founder of CrossBorder Capital and author of Capital Wars, to discuss global liquidity and the mounting case for a U.S. gold revaluation. Howell explains why M2 is outdated, highlighting the shift to asset-based liquidity as a better market gauge. They explore the U.S. debt spiral, pressure on the Fed to resume QE, and China’s role in shaping liquidity. Howell also examines how a gold revaluation could inject much-needed liquidity into the system as debt levels surge. With tightening financial conditions and shifting risk appetite, this conversation unpacks why liquidity—not interest rates—drives markets.
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