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BTC184: Q2 Macro w/ Luke Gromen (Bitcoin Podcast)
We Study Billionaires - The Investor’s Podcast Network
Impact of Highly Leveraged Market Dynamics
High leverage in the market can lead to binary outcomes where events escalate quickly. For instance, if swap lines are not opened and Japanese sell treasuries, it can lead to a chain reaction causing the yield and dollar to increase, thereby slowing global growth. This could escalate to a scenario where central banks and the world sell trillions of treasuries annually, pushing the market into a potentially devastating death spiral. Treasuries are crucial collateral for the financial system, and any disruptions, such as a significant drop in their value seen in the past, can trigger extreme measures like collateral write-ups by the Fed to stabilize the system. These situations highlight the delicate balance and potential fragility of the market under high leverage.
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