Debt-to-Liquidity Imbalance: Policy Shifts Needed for Sustained Market Growth

The US Debt/Liquidity ratio provides valuable insights into how liquidity sustains market performance.

Our charts clearly illustrate a relationship:

High debt relative to liquidity often coincides with market struggles.
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Low debt relative to liquidity typically supports strong risk market performance.

Currently, the ratio is at elevated levels.

While risk markets might rise on investor sentiment, we think a sustained rally likely requires a major policy shift—ending QT and initiating QE.

Rising debt is worsened by structural challenges like an aging population, Social Security, Medicare, and increased welfare costs.

These underscore the importance of monetary and fiscal policy in ensuring market stability.

We analyzed NVIDIA (longer historical data) and Bitcoin, as they often respond quickest to liquidity changes, offering a clear lens into these dynamics.

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