His speech comes as the Fed ends quantitative tightening (QT) while the odds of a cut at the upcoming meeting continue to climb, which is a positive for the crypto market.

The Fed ends QT today, which is a positive for the crypto market.

Yah, I suspected the ending of QT was a positive for the crypto market, but perhaps not so positive for most everyone else, as you will read. I’ve previously listened to discussions about stable coins being used or tied into a US attempt to reduce it’s massive debt. Particularly considering all the changes the Trump White house has made to benefit digital currency. Must have made those changes for some reason?- Whitehouse.gov

The piece from the Atlantic is written by David Frum- If he was the only one talking about this issue I’d probably opt not to use this article. But he is not the only one talking about the problem, so I can’t discount what he’s written.

The Atlantic via Archive.ph

The GENIUS act– see link at Whitehouse.gov^

On July 18, President Donald Trump signed into law the boastfully named GENIUS Act. If the law wreaks havoc on the financial system, as seems highly likely, that name will become a grim joke: What genius thought that letting the cryptocurrency industry write its own rules would be a good idea?

The Guiding and Establishing National Innovation for U.S. Stablecoins Act purports to create a regulatory framework for a type of cryptocurrency called stablecoins. Despite their reassuring name, stablecoins—which promise a constant value relative to real-world currencies, usually the U.S. dollar—are by far the most dangerous form of cryptocurrency. Their danger lies in the way they are meant to be safe.

Most people understand that cryptocurrencies are volatile and speculative. Bitcoin, ether, and other name-brand cryptocurrencies fluctuate in value day by day, year by year. Stablecoins are meant to do away with these fluctuations, yet they pose what may be a larger threat to the wider financial system. The GENIUS Act, like the Markets in Crypto-Assets regulation adopted by the European Union in 2023, offers safeguards that will likely enlarge the stablecoin market considerably. If—or when—the coins explode, the GENIUS Act more or less ensures that the U.S. government will have to bail out the stablecoin issuers and their holders on a scale of hundreds of billions of dollars.

DC’s GENIUS Plan: Use Stablecoins to Soak Up Its Own Debt aka Financial Repression

Since the debt is owed in nominal terms, one way to reduce the debt would be to issue more dollars to buy it back. This would lead to higher inflation. Although technically not a default, higher inflation would effectively reduce the real (inflation-adjusted) repayment lenders receive.

That said, even an independent Federal Reserve could end up effectively monetizing the debt. Should debt continue on its unsustainable path, for example, concerns about the ability of the government to repay might lead to volatility in the bond market. The Federal Reserve would likely respond by acting as a buyer of last resort, expanding its balance sheet and ultimately causing higher inflation. Still, there is probably some limit to how much the Fed would monetize the debt, so long as it maintains its independence.

Financial Repression

That leaves financial repression. Financial repression is defined as a formal requirement by the government that certain financial institutions purchase government debt. The government might prevent certain financial institutions from holding any financial assets other than government debt. Alternatively, the government could require financial institutions to hold a specific fraction of assets in US Treasury securities. The effect of such policies is to increase the demand for the government’s debt, which weakens the tendency for rising debt issuance to lead to higher borrowing costs.

Enter the GENIUS Act.

Stablecoins are digital dollars, similar to the digital dollars in traditional bank accounts. Both are claims to a physical dollar issued by the financial institution. Whereas the digital dollars in one’s bank account reside on a ledger controlled by the financial institution and are transferred over the payment rails of the traditional financial system, stablecoins reside (and are transferred) on the blockchains of various cryptocurrency projects.

Stablecoin issuers are financial intermediaries. One deposits a dollar to receive a stablecoin. The issuer sets a fraction of the dollars it receives aside to meet redemption requests, and uses the remaining fraction to buy interest-earning assets. This is where the financial repression comes in. The GENIUS Act requires that these stablecoin issuers hold their assets in cash, short-term US Treasury securities, or as reserve balances at the Federal Reserve.

The hope is that stablecoins will expand global access to dollars. The issuers will then invest a fraction of those dollars into US government debt. To the extent that these stablecoin holders were not previously holding dollars or dollar-denominated assets, the new policy could significantly increase the demand for US government debt and keep borrowing costs down.

This isn’t mere happenstance. A number of current and former members of Congress are on record arguing that stablecoins expand the reach of the US dollar globally, reinforcing dollar dominance, while also creating a growing, passive demand for US government debt.

Lastly, Kevin Hassett — a close ally of President Donald Trump with very little central bank experience — emerges as the frontrunner to lead the U.S. Federal Reserve.

Trouble Coming?

Bloomberg via archive.ph

CNBC via archive.ph

The U.S. Federal Reserve is widely expected to cut interest rates when it meets on Wednesday with little to no room for a surprise. Any remaining excitement is centered on what the central bank will signal regarding its balance sheet and the path forward. Short-term interest rates have been particularly volatile in recent weeks, with the U.S. repo market signaling potential liquidity distress as it trades within a few basis points of the Fed’s upper limit, and in fact was above the top of the range Monday. The repo market is considered the plumbing of the U.S. financial system as it is the place where banks go for the overnight loans they use to fund operations. The rise in funding rates has raised questions over the state of bank reserves and led a number of analysts to bet on the Fed ending its quantitative tightening (QT) program earlier than expected. “We expect the FOMC to end its securities runoffs at this month’s meeting

Back to quantitative easing? And a uptick in inflation?

Pockets of global money markets are coming under strain as central banks have been pulling back easy money policies just as governments are boosting debt issuance, luring cash away from the financial system.
Key gauges of secured borrowing have risen in the US and UK, reaching levels not seen in years. While the drivers in each case may differ, the signs of tighter liquidity are flashing across markets.
The ripples suggest a normalization after years of central bank bond purchases flooded funding markets with excess cash. But investors are also wary of risks, such as a repeat of the spike in US short-term interest rates that rocked markets in September 2019 — prompting the Federal Reserve to pump half a trillion dollars into the financial system.
“Global money markets will all need to find their way in a world without excessive reserves,” said Michiel Tukker, a senior rates strategist at ING. “Although central banks now have many ways pump in liquidity if needed, the question is whether such liquidity will reach those in need.”

On Wednesday, the Fed said it will stop shrinking its Treasury holdings beginning Dec. 1, ending a three-year long effort after stress signals intensified. The Bank of England, meanwhile, is encouraging financial institutions to borrow cash from its revamped range of repurchase facilities to minimize the risks of excessive volatility.
Here’s an overview of the most important metrics from around the world:
US
The Fed’s main liquidity facility, the reverse repo facility, is nearly empty and bank reserves have dropped as the government is rebuilding its cash pile after raising the debt ceiling this summer while the central bank kept on tightening its portfolio.

If the Fed stops shrinking it’s holdings- does this mean they will increase or expand their holdings?

Tradable.com- Fed pumps 29.4 billion in biggest single liquidity move since dotcom bust

● Overnight repos let banks swap Treasury securities for quick cash when they need immediate funding. This massive spike suggests banks are facing real pressure to cover short-term obligations — likely tied to month-end balance sheet adjustments or sudden demand for Treasury collateral.

● What makes this notable isn’t just that repos happen — they’re a standard Fed tool — but the size and timing. After years of minimal repo activity, a $29.4 billion injection stands out.

● Historically, sudden jumps in Fed repo operations signal stress. We saw it in 2019 when the repo market seized up, and before the early 2000s downturn. Banks typically tap this facility when they hit temporary funding gaps or when Treasury market turbulence disrupts normal liquidity channels.

Economictimes.indiatimes.com

It’s the first major liquidity push of this scale since early 2020, the pandemic-era rescue phase.

Last time we were given a “pandemic” , military operation, this time bigger, expanded war?