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Former BitMex CEO Arthur Hayes believes upcoming policy moves by the U.S. Treasury under Secretary of State Janet Yellen could significantly influence the liquidity landscape and potentially catalyze rallies for crypto and stocks.
Hayes said the market should stop focusing on the Fed's policy decisions because the Treasury only has three options for its policy action next week, any of which could potentially inject high levels of liquidity into the steps.
Hayes speculated on several unconventional strategies the Treasury could deploy following a substantial increase in tax revenue that added around $200 billion to the Treasury General Account (TGA).
Hayes Predictive Scenarios
The TGA is the primary operating account of the U.S. government and its management is crucial to federal spending and the broader liquidity of financial markets. Yellen is expected to make the next Treasury repayment announcement the week of April 29.
TGA reset
Hayes' first scenario involves the Treasury stopping the issuance of new Treasuries and instead depleting the TGA balance, thereby injecting approximately $1 trillion into the market. This could lower interest rates and stimulate economic activity by increasing the money supply available for lending and investment.
Shift to Treasury Bills
In his second scenario, Hayes suggests moving toward short-term borrowing using Treasury bills, thereby reducing balances held under reverse repurchase agreements (RRPs) and providing an additional $400 billion in increase. dollars of liquidity in the market. The Federal Reserve uses the RRP to manage short-term interest rates and control excess bank reserves.
Combined approach
The most dramatic scenario combines the first two, in which the Treasury would choose to suspend long-term bond issuance and aggressively reduce TGA and RRP balances to release a total of $1.4 trillion into the financial system .
Market effects
Hayes did not mince his words, emphasizing Yellen's central role in these potential developments, describing her as a key player whose decisions must be respected given their possible impact on market forces.
He predicted that implementing any of the three strategies would boost stock markets and precipitate a resurgence in the crypto market – which is already in a bullish phase. However, financial analysts are divided on the feasibility and potential consequences of Hayes' predictions.
Some echoed his enthusiasm, suggesting that such aggressive liquidity measures could reinvigorate markets amid current economic pressures. On the other hand, others have warned that these measures could lead to unintended consequences, including inflationary pressures or increased market volatility.
As the date for the Treasury's next quarterly repayment announcement approaches, the financial community remains alert for any signs that Yellen may employ such unorthodox strategies. These decisions are crucial because they could set precedents for how national economic policies can significantly influence global financial markets.
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