Are you seeing a huge inflow of liquidity into the market in Q1/2021?Published by: 26.02.2021 11:43:57 Do you think this move will affect inflation?
Kamala Harris, the first female vice president in US history, used her right to intervene in the vote for the first time since she entered the White House. According to the AP, the passage of the budget plan is a significant step towards the swift approval of a nearly two trillion dollar package to revive the economy and help combat the spread of covid-19.
Among the measures proposed by President Biden are, among others, direct payments to Americans of $1,400 (31,000 CZK), increased federal benefits for the unemployed, billions of dollars to support the vaccination campaign or programs aimed at Americans who have trouble covering their most basic needs. Biden will speak again about the state of the economy and his "rescue plan" around noon today.
A literal flood of $800 billion of liquidity is expected to hit the market over the next six weeks, and as much as $1.1 trillion could flow into the market over the next ten weeks. And to make matters worse, there is potentially another 300 billion in play over the next two months. And all of this directly from the US Treasury.
The Treasury keeps its money in a checking account held at the Fed. The account holds money from tax levies as well as dollars raised during Treasury bond auctions. Ultimately, monetary policy and quantitative easing is conducted through this account.
With the decline in the U.S. Treasury's cash balance, commercial banks will increase their reserve levels by approximately $900 billion in the current quarter. And this is the development that has in the past triggered a noticeable upswing in the price of risky types of investments such as equities, commodities, and nowadays even bitcoin.
Many investors may have missed the biggest news of the past week. That was the release of the US Treasury's latest borrowing forecast, which shows that the US will borrow just $275 billion in the current quarter, a whopping 75% ($853 billion) less than projected back in November 2020. At the time, it was written at around USD 1.1 trillion
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