Government Shutdown Impacts Liquidity and Markets, Recovery Expected

According to Foresight News, Raoul Pal, founder of Real Vision, recently commented on the current liquidity crunch caused by the government shutdown. The Treasury General Account (TGA) has accumulated funds with no outlet for expenditure, and this situation has not been alleviated by reverse repo operations. Quantitative tightening (QT) has further exacerbated the liquidity squeeze, impacting markets, particularly the liquidity-driven cryptocurrency sector. Traditional financial asset managers, facing underperformance against benchmarks, are compelled to chase the market, stabilizing tech stocks. If liquidity withdrawal continues, the stock market could also suffer significantly. However, with the conclusion of the government shutdown, the Treasury is expected to spend between $250 billion and $350 billion in the coming months, ending quantitative tightening and technically expanding the balance sheet. As liquidity begins to flow, the dollar may weaken again, and uncertainty will diminish following the completion of tariff negotiations. Ongoing bond issuance will increase liquidity through bank balance sheets and money market funds, including stablecoins. Even if the economy weakens due to the shutdown, the necessity for interest rate cuts will rise. Changes in the Supplementary Leverage Ratio (SLR) of bank balance sheets will release more credit. The passage of the CLARITY Act will provide much-needed crypto regulation for large-scale adoption by banks, asset managers, and corporations. Looking ahead, an economic stimulus package is expected to drive the economy towards the midterm elections, with the entire system moving towards a robust economy and market by 2026. China will continue to expand its balance sheet, while Japan will strive to strengthen the yen and implement fiscal stimulus. The ISM is anticipated to rise as interest rates decline and tariff uncertainties fade. Patience is required to endure the current challenging period, with a flood of liquidity anticipated ahead. It is crucial to remain patient and seize buying opportunities when they arise.