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The global financial system is teetering on the edge of a liquidity crunch that could reshape markets and economies worldwide. Financial Sense Newshour recently sat down with Dr. Michael Howell, founder of CrossBorder Capital and a pioneer in global liquidity analysis, to unpack this potential liquidity turn and how it might impact markets. Howell, a former Salomon Brothers research director and author of the acclaimed Capital Wars Substack and book, delivers a stark warning: surging liquidity may be fueling markets now, but a looming debt maturity wall and monetary inflation signal trouble ahead.

Decoding Global Liquidity: A Slippery but Vital Concept

Howell begins by demystifying global liquidity, a concept he pioneered that’s often misunderstood. “It’s a little bit like trying to grab a bar of soap in a shower because it’s a slippery concept,” he quips. Unlike market liquidity, which measures trading depth, Howell focuses on funding liquidity—the flow of credit and savings through global financial markets. “It’s really a measure of the balance sheet capacity of the financial sector, the ability of banks or investors to roll over debt,” he explains. This metric, distinct from money circulating in the real economy, drives asset prices and market stability. Howell’s framework, honed over decades, is a must-understand for investors navigating today’s volatile markets.

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The Three Pillars of Liquidity: Fed, China, and Bank Lending

Howell identifies three key drivers of global liquidity: Federal Reserve actions, the People’s Bank of China (PBOC), and collateralized lending. The Fed’s liquidity injections, often disguised as quantitative tightening, have been “juicing” U.S. markets since late 2022, Howell reveals. “They’re not tightening liquidity; they’re expanding liquidity,” he says, pointing to backdoor mechanisms like reverse repos and the Treasury General Account, which injected $400–500 billion recently. The PBOC, meanwhile, is “opening the money taps unambiguously” to combat China’s debt deflation, boosting commodity markets and Asian supply chains. “Look at the yuan-gold price, which has more than doubled in 18 months,” Howell notes, signaling aggressive monetization. Collateral, primarily U.S. Treasuries, underpins 80% of credit markets but faces pressure from rising yields. Despite lower bond volatility reducing haircuts, Howell warns that a collateral collapse could trigger a liquidity crisis.

Liquidity Surge: A Temporary High Before the Fall

Last year, Howell predicted global liquidity would peak in 2025, and he stands by that forecast, though it may extend into early 2026. “The cycle is getting mature,” he cautions, noting that tech stocks, early-cycle leaders, have likely peaked, while financials and commodities are gaining traction. “This looks like a very normal liquidity cycle,” he says, with a weakening dollar and steepening yield curve signaling late-cycle dynamics. The PBOC’s easing is set to accelerate, potentially lifting emerging markets and commodities. “A weaker dollar and a strong Chinese economy are key for emerging market outperformance,” Howell explains. For investors, this suggests opportunities in gold, silver, and Bitcoin, but caution is warranted on timing.

Debt Maturity Wall: A Ticking Time Bomb

The looming debt maturity wall in 2026–2027 is Howell’s gravest concern. “This is going to drain financial markets because of the need to roll over expiring debt,” he warns. The Treasury’s plan to rebuild its General Account to $850 billion could siphon liquidity, though Howell doubts it will happen due to market pressures. More alarmingly, the U.S. is shifting to short-dated debt issuance, a strategy that risks spiking interest costs if rates rise. “If interest rates suddenly spike, the U.S. government’s interest bill would be a disaster,” Howell says. This monetization—banks buying short-term Treasuries—fuels inflation, a red flag for markets.

Monetary Inflation: Rewriting the Investment Playbook

Howell paints a dire picture of “fiscal dominance,” where governments, squeezed by welfare burdens and limited tax revenue, resort to printing money. “We’re in a world of monetary inflation,” he asserts, rendering the traditional 60/40 equity-bond portfolio “redundant.” Investors should allocate at least 40% to inflation hedges like gold, silver, Bitcoin, prime real estate, and large-cap equities, Howell believes. “U.S. debt has increased tenfold since 2000, and the gold price has kept up,” Howell notes, underscoring the trend’s longevity. This shift demands a new investment paradigm.

Navigating the Cycle: Risk-On, but Time’s Running Out

While liquidity remains robust, Howell stresses prudence. “We’re not at midnight yet, but we’re getting late in the day—maybe 9 o’clock,” he says, indicating the cycle’s maturity. The peak, likely in early 2026, will mark a turning point, with slowing liquidity growth signaling risk-off conditions. Investors should capitalize on current opportunities—commodities, emerging markets, and inflation hedges—while preparing for the debt wall’s impact. “Context is critical. Separate cycle from trend and invest for monetary inflation,” Howell suggests.

Conclusion: Act Now or Face the Consequences

Michael Howell’s urgent analysis is a clarion call for investors to rethink strategies in a world of monetary inflation and looming liquidity risks. “This is a process, not a singular event,” he warns, urging action before the debt maturity wall hits. The Financial Sense Newshour interview, rich with Howell’s insights, is a must-listen for financial professionals. His Substack, Capital Wars, and book (Capital Wars: The Rise of Global Liquidity) provide indispensable tools to navigate this crisis. With markets on borrowed time, investors must act swiftly to hedge against inflation and secure their portfolios. Don’t get caught off-guard when the cycle shifts.

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