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Tuesday Nov 4 2025 23:10
2 min
We've witnessed a post-pandemic era defined by fiscal dominance, where governments fueled growth through deficits and spending. But is this era coming to an end? And are we on the cusp of a shift towards a private sector-led economy? This article delves into these questions through a comprehensive analysis of global liquidity dynamics.
Previously, governments were injecting liquidity into the economy through massive spending. However, with the implementation of spending restrictions and increased tariffs, governments are now starting to withdraw liquidity rather than provide it. This shift puts pressure on the Federal Reserve to lower interest rates to stimulate growth.
To finance government spending, the Treasury resorted to a new form of quantitative easing, where spending was funded through short-term notes rather than long-term bonds. This artificial support for the market contributed to rising asset prices.
Data suggests that the global liquidity cycle may be nearing its peak. This means that investors may begin to shift towards safe-haven assets like cash and bonds, away from riskier assets like stocks and commodities.
As the debt-to-liquidity ratio rises, it becomes more difficult to service outstanding debts. This creates additional pressure on economies and makes them more vulnerable to financial crises.
Historically, Bitcoin has led global liquidity cycles, peaking months before the cycle reverses. Does this suggest that we are nearing a new peak in asset markets?
The shift from fiscal dominance to private sector leadership, coupled with changes in global liquidity, creates a complex investment environment. Investors should closely monitor these developments and adjust their portfolios accordingly.
Risk Warning: this article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform.When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.
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