Who Really CONTROLS The Markets!! Her Plans REVEALED!!

over the last four years we've been taught that central banks notably the US Federal Reserve have been controlling the markets with their interest rate decisions well what if I told you that this isn't true what did you say in fact it appears that the US Treasury Department has been in control for at least the last 2 years this means that if you want to make money in the markets you need to know what the treasury is doing and why that's why today we're going to explain what the treasury is how it's been controlling the markets why it's been doing this and how you can use this information to get an edge in investing and trading the United States Department of the treasury whose acronym is ironically usdt like the stable coin is basically the financial arm of the US government it handles everything related to taxes government spending government financing and even oversees the minting and printing of physical currency more about that rabbit hole in the description I digress anyways the treasury doesn't just deal with domestic financial matters as you can see here it has two divisions dedicated to International financial affairs one of them includes the infamous office of foreign assets control or ofac which deals with sanctions on enemies of the United States keep this in mind for later now the secretary of the treasury is Janet yelen Janet is a fascinating character because she used to be the chair of the Federal Reserve this means that she has an in-depth knowledge of how the Fed works Janet is also partisan she is closely aligned with the current Democrat Administration this is important to point out in part because the treasury's influence over the markets has its roots in government spending you see when us politicians vote to spend trillions of dollars on stuff it's up to the treasury to figure out how to finance it and it's up to Janet to make sure this financing happens as most of you will know there are two ways the US government finances its spending by collecting taxes and fees and by issuing debt when taxes and fees aren't enough to cover the costs the US government will issue debt this is called a deficit and last year the US had a two trillion deficit in Practical terms this means that the treasury had to issue $2 trillion in debt now here is where things get interesting but also a bit complicated so pay close attention when the treasury issues debt it essentially sells pieces of paper to investors containing a promise to pay them back in the future with interest these pieces of paper come in different durations bills are issued for one year or or less notes are issued for 2 to 10 years and bonds are issued for up to 30 years for the sake of Simplicity will refer to all these pieces of paper as bonds where we can anyhow us bonds can be freely traded on the open market this makes bonds interesting and that's for three reasons the first is that the yield on a bond depends on its price if a Bond's price Falls its yield Rises and VI Versa as with all assets the price of bonds depends on supply and demand as such the more the US government spends the higher the supply in other words the more the US government spends the more bond prices fall and yields rise assuming demand stays the same of course and this ties into the second Reason Why Us bonds are interesting and that's because they determine interest rates on similar durations of debt in the economy this is because bond yields are seen as the lowest risk form of Interest the interest rates on riskier debts are therefore priced at bond yields Plus Credit spread this relates to the third Reason Why Us bonds are interesting and that's because their assumed safety makes them the most popular form of collateral in the Global Financial system in plain English wealthy individuals and institutions often use us bonds as collateral to borrow even more money or as Savings in other words a large chunk of the demand for us bonds comes from overseas around 25% in fact obviously this demand fluctuates based on many factors which we'll come back to in a moment in the meantime if you've already learned more here than your teachers taught you in school be sure to smash that like button to help others learn and subscribe to the channel and ping that notification Bell so you don't miss the next lesson so ma'am where exactly were you on the night of the murder I was right here detective all night long you got anyone who can back that up you mean an alibi yeah that's the one no I was all of my lonesome and what exactly were you doing all on your lonesome if you don't mind me asking well keep it under your hat detective but I was looking through the coin bu deals page what's a coin Bureau deals page when it's at home it's only the place where you'll find the best discounts and promos in all of crypto what do you mean I mean trading fee discounts of up to 60% and sign up bonuses up to $60,000 on some of the best exchanges holy smokes they got discounts on Hardware wallets too by any chance they sure do detective like you wouldn't believe well that sure sounds kind of swell lady but just you give me one good reason why I should believe a single word you say you don't have to take my word for a detective take a look at the link down below and see for yourself she wasn't kidding those deals really were something else turns out that crypto ain't such a bad place after all you just got to know your way around okay now that we understand a bit about the treasury Janet yelen and US bonds we can start to unpack how and why the treasury has been controlling the markets over the last few years this requires taking a closer look at the Dynamics between the fed and the treasury and and what drives them as all of you will know the FED is tasked with ensuring the US economy remains robust and inflation stays moderate by adjusting interest rates to be exact the FED aims to ensure that unemployment the percentage of people actively looking for work stays at around 4% and that inflation stays at around 2% for those unaware raising interest rates causes inflation to fall but causes unemployment to rise as it lowers economic activity by restricting lending conversely lowering interest rates causes inflation to rise and unemployment to fall as it increases economic activity by encouraging lending news flash the entire economy runs on debt but that's a topic for another time anywh who the FED adjusts interest rates in three ways by changing the interest rate for overnight lending between commercial Banks which affects short-term interest rates by buying or selling us bonds via the commercial Banks which affects long-term interest rates and through so-called forward guidance forward guidance includes all manner of comments and indications that are meant to inform investors about what the FED plans to do next the most famous form of forward guidance is fed chairman Jerome Powell's speeches which are given after each interest rate decision these are treated as gospel now this makes sense because the markets are forward-looking put simply the prices of assets today reflect what investors believe will happen tomorrow be it related to interest rates or otherwise by the time the Catalyst actually comes the markets have fully priced it in meaning it has a muted effect on markets the thing is though that Jerome isn't the only preacher that investors are listening to Janet is another and she's had just as much if not more of an impact on the markets than Jerome for example when markets crashed in October 2022 Janet said that Bond liquidity needed to improve and the markets recovered and when Banks started to collapse in March 2023 Janet came out and effectively said that the treasury was ready to do whatever it takes to bail them out the markets subsequently recovered and in November last year when interest rates were Rising Janet pushed them back down with her words specifically she made a speech saying that interest rates were high enough and it was about time they came down referring directly to the FED shortly after Jerome spoke after the fed's meeting and announced that the central bank was planning to cut rates a dovish pivot signaling lower rates that duly got priced in the treasury simultaneously began issuing more short-term bonds reducing the supply of long-term bonds on a relative basis the fed's signaling of lower short-term rates and the treasury's issuance of short-term bonds collectively caused long-term interest rates to fall resulting in a market rally on that note the treasury had already been issuing a large amount of short-term bonds to ensure that long-term interest rates didn't rise too much recall that the deficit was two trillion dollar in 2023 such a large issuance of bonds would have high yields to to attract money from other markets causing them to crash in this case however the treasury was able to finance all this short-term Bond issuance using the fed's overnight reverse repo facility or RRP now without getting too technical the RRP allows investors to earn a yield similar to the short-term interest rate set by the fed this is to help transmit its monetary policy Janet convinced the investors in the RRP which held over 2 .2 trillion at its peak to invest most of their Capital into the treasury's short-term bonds which offered a similar yield this eliminated the need for the treasury to raise yields on these bonds to attract money from other markets such as stocks in some the treasury has also been controlling interest rates and this has been controlling the markets so now that we understand a bit about the Dynamics between the fed and the treasury we can dig deeper into why the treasury is doing what it's doing whereas the fed's Mandate is to ensure that unemployment and inflation remain stable the treasury has an open-ended mandate with no numbers according to its website the treasury's Mandate is to be quote responsible for promoting economic prosperity and ensuring the Financial Security of the United States what's meant by economic prosperity and Financial Security you may ask well it's whatever it means to whoever is in power now this is where politics comes in and I'll kick it off with a fun factoid according to Goldman Sachs quote incumbent US presidents tend to win elections except during recessions in case you missed the memo there's going to be an election in the US this November and President Biden is the incumbent given that Janet is on team blue it's incumbent on her to ensure that a recession does not occur before the election in practice this means making sure the current Administration can spend as much as possible while providing minimal disruption to the bond markets namely limiting yields on bonds at the same time though it's incumbent on Jerome to make sure that inflation doesn't get too high because of all this government spending besides the fact that it's his job to ensure that it doesn't Jerome also seems to want to leave a legacy he's also by the way a republican though it's not clear if he's partisan regardless the fact of the matter is that the imperatives of the treasury and the FED are at odds this has resulted in a delicate dance that's been LED mostly by Janet remember that she used to run the Fed she knows which levers Jerome needs to pull and it seems he's been reluctantly pulling them sorry I just accidentally visualized Jerome and Janet dancing in all seriousness it's easy to forget that it's not just the domestic issues that determine who will win an election international issues also have an effect I'll reiterate that the treasury has two divisions dedicated to International Affairs naturally one of these deals with friends and the other deals with foes on the friend side it's believed that Janet has been trying to convince countries such as China to continue accumulating us Bonds in case you forgot most most countries will invest the US dollars they get from international trade in US bonds China and others have been reducing their bond purchases as you've learned this reduction of foreign bond purchases has made it more difficult for the treasury to issue bonds without raising yields and raising interest rates by extension the reason why foreign purchases of us bonds have declined is because of what the treasury has been doing on the foe side when Russia invaded Ukraine in February 2022 the US and its allies made what many considered to be a geopolitical mistake and that was freezing the assets of various Russian individuals and institutions this sent a signal to the world that enemies of the US and its allies could get similar treatment in the future the result has been that many countries have since started moving away from us bonds and other US dollar assets and accumulating other internationally recognized assets such as gold to be clear this had already been happening prior to the freezing of Russian assets but it seems this accelerated the trend in any case here's where politics and Janet come back into the picture the Ukraine war appears to be popular with Democrat voters and it's geopolitically imperative to the US regardless of what voters think this has put pressure on Janet to act accordingly and she may be about to act in a big way back in February Janet called on the US and its allies to seize the Russian assets they had Frozen and send them to Ukraine last month us politicians passed a bill giving the treasury the authority to do this unlocking an estimated $6 billion of Russian assets Frozen in the US Financial system although this seizure hasn't happened yet it's likely that it will happen due to its popularity with Democrats and the US government's own geopolitical imperatives there's just one problem and that's that this will be an even bigger watershed moment for anyone holding us bonds or indeed other US dollar assets as many macro analysts have pointed out seizing Russia's assets and sending them to Ukraine or wherever else would likely create a risk premium for us bonds and similar assets put differently it will likely cause their prices to drop and yields to rise as investors Run for the hills or rather to Gold it seems the treasury is preparing for this because it recently announced its first Bond buyback program in over 20 years Yes you heard that right the US government is going to buy back its own debt these BuyBacks will start at the end of this month so that's presumably when we'll get bond market volatility this brings me to the big question and that's how you can use this information to get an edge in investing and trading the answer is one word liquidity that is the amount of money in the markets the reason why the fed and treasures actions affect the markets is because they change liquidity levels this is where the fed's recent decisions come into Focus while everyone was focused on the fed's interest rate decision at its most recent meeting the bigger news was the change to its balance sheet in short it would begin buying more us bonds each month mainly longer term us bonds logically this will cause the yields on those bonds to fall along with interest rates more importantly it will give wiggle room for the treasury to issue more long-term bonds at a time when the fed's RRP is running out I'll remind you that the RRP was where the treasury was getting money from in recent months the RP has flatlined at around $400 billion meanwhile the amount of money in the treasury general account or TGA the US government's bank account has ballooned to over 800 billion FYI the treasury has historically kept around $400 billion in the TGA for operational expenses what this means is that the treasury has an extra $400 billion sitting around that it can use to juice the economy and the markets a portion of this will likely go towards the aforementioned Bond BuyBacks it's not clear though where the remainder will go but it doesn't really matter that's because all this money will eventually find its way into the markets in the case of bond BuyBacks the investors who have the bonds being bought back will have money they can spend elsewhere these investors will either put their money into other assets like stocks which will cause them to rise or if they put the money back into bonds instead stocks will still rise because investing in other bonds will cause their yields to fall which will cause interest rates to fall and boost economic activity this lowering in yields will also make bonds less attractive causing Capital outflow into other assets with higher yields in the case of any other spending the treasury does into the economy this Capital will likewise eventually find its way back into the markets for example suppose it gives a few billion to some Renewable Energy company as part of the administration's trillion dollar ridiculously titled inflation reduction act this will allow this Renewable Energy company to hire workers these workers will spend their money on goods and services owned by publicly listed companies these publicly listed companies will take this capital and buy back their own stocks or just hand the money to their Executives who will buy other stocks speaking of which this is why Universal basic income or Ubi will never work any money that's handed out to people in need will be spent on goods and services that means it gets funneled right back to the top and that money will be used by the rich to invest in assets like real estate making said assets ever more unaffordable but anyway back to the topic at hand the key takeaway here is that the treasury has $400 billion in its back pocket that will eventually find its way into the markets this money will likely be spent before the election to boost the economy and reduce the risk of a recession Janet's gift to Biden in the short term However the fact that the FED isn't lowering short-term rates and won't begin its balance sheet Shenanigans until June means that liquidity will likely be neutral to negative until then and don't forget that the treasury's bond BuyBacks won't begin until later this month either the consequence could be a few weeks of sluggish price action and some would say that we're already seeing this the caveat though is that the blackout period for stock BuyBacks ended last Monday to bring you up to speed the blackout period prevents stock BuyBacks around weeks when quarterly earnings come out as it so happens Apple recently announced the largest stock buyback in history a whopping $110 billion it's safe to say that this will be a huge Tailwind for stocks and come to think of it it could be why stocks have been rallying while cryptos on the other hand have been falling behind this though should change as overall liquidity improves according to macro analyst Michael how crypto lags liquidity by about 6 weeks which means that it may not start to catch up until sometime in Late July or even August this assumes that there's no additional liquid coming from other sources because someone somewhere is always printing money and that's all for today's video folks so if you found it informative smash that like button to let us know if you want to stay informed subscribe to the channel and ping that notification Bell and if you want to help inform others about what the treasury has been up to be sure to share this video with them and with all that said Thank thank you so much for watching and I'll see you in the next one this is guy over and out [Music]

Channel: Coin Bureau

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Keywords: crypto, coin bureau, us treasury, what does treasury do, btc, cryptocurrency news, btc price, bitcoin, crypto news, bitcoin price, janet yellen, janet yellen speech, janet yellen china, janet yellen treasury, bitcoin today, bitcoin price prediction, financial freedom, finance tips, personal finance

Id: hBSxkY6DL5o

Length: 22min 13sec (1333 seconds)

Published: Tue May 14 2024