---
title: 'China Shut the Money Tap March 2. Michael Howell Says That''s Why Gold Stalled.'
source: 'https://youtube.com/watch?v=eODE1MFlO-Q'
video_id: 'eODE1MFlO-Q'
date: 2026-08-07
duration_sec: 932
---

# China Shut the Money Tap March 2. Michael Howell Says That's Why Gold Stalled.

> Source: [China Shut the Money Tap March 2. Michael Howell Says That's Why Gold Stalled.](https://youtube.com/watch?v=eODE1MFlO-Q)

## Summary

In this interview, Michael Howell, CEO of GL Indexes and author of 'Capital Wars', discusses the current state of global liquidity and its implications for financial markets. He argues that the liquidity cycle is rolling over outside of China, with central banks beginning to tighten, and that this shift is driving higher volatility and a grind for financial assets. He also analyzes the role of government spending, the Treasury's issuance strategy, and the potential for a steepening yield curve, while highlighting China's unique position as a source of liquidity expansion.

### Key Points

- **Liquidity Cycle Rolling Over** [00:01] — The momentum of liquidity in financial sectors worldwide is slowing, with the exception of China. Outside of China, liquidity has passed its peak and is beginning to decline, with central banks starting to tighten.
- **US Economy on a Roll** [01:34] — The US economy appears strong, and money is moving from financial assets to the real economy, which will make it harder for financial assets to keep rising.
- **Speculative Phase** [02:01] — The current phase is 'speculative', meaning you can make money but volatility is high. This is a symptom of liquidity being pulled in many directions, leading to choppy markets and underperformance for many asset managers.
- **Fed Cannot Tighten Independently** [03:21] — The Fed cannot tighten policy in a world dependent on refinancing and collateral. Governments are addressing every problem with more spending, which requires accommodation through money printing, and many are copying the US Treasury playbook by funding at the short end.
- **Treasury Monetization** [04:18] — The Treasury is starving the market of long duration and pumping everything into the short end. Banks buying government debt effectively print money, so this is monetization at large, not the Fed doing QE. This could lead to rising bond yields.
- **Collateral Situation Worsening** [05:36] — Rising yields are denting collateral, and the MOVE index (bond volatility) is trending higher. The Treasury buyback announcement and QR details are critical to watch for whether they want to control volatility and stop the yield curve steepening.
- **Fed Wants Steeper Curve** [06:33] — Kevin Walsh (Fed Chair) wants the market to do the tightening, allowing longer yields to rise, while keeping bank reserves ample. This implies a steeper yield curve, reversing the earlier flattening trend.
- **Dollar Liquidity and Fed Hikes** [08:35] — The dollar is likely to pick up when the Fed starts to tighten. An AI backtest showed the 2-year Treasury note predicts the future course of Fed funds rate 85% of the time, suggesting a couple of hikes are coming.
- **China's Cycle Picking Up** [09:42] — China's credit cycle is at the opposite phase, beginning to pick up. China needs to pump liquidity into its economy to avoid debt deflation, which would devalue the yuan internally and likely boost gold prices.
- **China's Money Tap and Gold** [10:49] — The People's Bank of China turned off the money tap on March 2, coinciding with the start of Iran tensions, and restarted it when tensions seemed over. This deliberate cooling and restarting is likely to lead to a gold market pickup.
- **Government Liquidity Extends Cycle** [12:12] — Government-injected liquidity extends the business cycle but not necessarily the financial cycle. Money is being drained from financial markets to feed the real economy, at the expense of asset markets.
- **Early Warning Signals** [14:17] — Bitcoin is the greatest heads-up for the western liquidity cycle, with confirmation from the yield curve. If China starts pumping liquidity, the gold market will go up a lot, indicating two parts of the world.

### Conclusion

The global liquidity cycle is turning, with the US and other Western economies seeing a slowdown, while China is poised to inject liquidity. Investors should watch Bitcoin and the yield curve for Western signals, and gold for Chinese liquidity, as these will indicate the next major moves in risk assets.

## Transcript

markets are usually listening to a conversation about rates or semiconductors or what the Fed's going to do next. Our guest here in Trading bit of a deeper way. He takes a look at liquidity. Joining us today is Michael
Howell. He's the CEO of GL Index's former CEO, founder of Crossber Capital. He's author of the book Capital Wars. Maybe you've read it. Uh and he's the perfect conversation guest for today's show. Michael, welcome. Well, hi Chris.
always in Marcus. >> It's it's a lot that's going on right week's Fed meeting where everyone freaked out about Wars' tone, lack of forward guidance. Will we have rate hikes? Will we not? Uh, forget the noise
of it out there, including with the intervention, which we'll get to in a quick second. What's the look today at global liquidity? What's it telling us about the next major move in risk assets and how central banks are managing
energy crises and inflation problems amidst the Iran war? >> Well, I think the the first thing to say is that the cycle is is rolling over. I mean, that that's uh that's pretty clear. Um the momentum of liquidity in
uh in the financial sectors worldwide is slowing. Uh there's one there's one big exception there which is China, but we can come on to that in a moment. But outside of China, basically liquidity has passed its peak and it's beginning
central banks are tightening yet. I mean, there's the beginnings, the first signs of that. And I think Chair Walsh kind of hinted that the US is uh is getting close to that point. Uh but generally, it's because economies have
yesterday, which actually was another big number. Uh looks like the US economy is on a roll. And the plain fact is that all money that's anywhere must be economy, it's not in the financial sector. And that sort of sucking sound
of liquidity moving from financial assets to the real economy is basically going to make it uh you know a hard grind uh for financial assets to keep rising. >> So we're not in necessarily the the roll
down part of the cycle. You say we're rolling over. Is this still a liquidity >> Yeah, I think generally I mean it's a phase that we call speculative. I mean that really says you can make money but
volatility is high and you look at the last month and boy volatility has been pretty high. Um you know you must have been asleep if there was no volatility. place and I think that's just a symptom of the fact you it's been pulled in many
directions. Liquidity is beginning to fade. Uh it's there's not the straight line moves that we're seeing in many uh in many assets that we saw you know over trickier and you just got to look at the
performance of many many asset managers. Uh many have actually had have got down down downyear performances uh in uh in 26. Uh and that's you know that's it's been quite easy to be in that boat. >> You know it seems like Kevin Worsh and
really want to shrink their balance sheets and rebuild some credibility going to lose a little bit more through the current round. But obviously markets and governments have different considerations. Uh they seem to want a
policy makers are able and willing to provide here henceforth. Um treasury is rising, collateral demand is still enormous. Can can we still see the Fed
policy in a world that's dependent this dependent on refinancing and collateral? >> Well, short answer is no. I mean, it can't. It's a it's a stiff ask. And the said, if you look at what governments are doing, governments are basically uh
addressing every every problem with more spending. And you look at what's example of the Iran tensions uh basically uh pretty much every higher oil prices uh dished out subsidies. I mean that's printing money
or that that requires u you know accommodation through printing money and that's the path of least resistance. And the fact is that uh uh a lot of governments are copying the US Treasury playbook are beginning to fund at the
short end of the market. Uh there's an awful lot of bill issuance going on. Um you know uh Treasury Besson has been very clever here that he's starving the market of long duration and basically pumping everything into the short end.
Now that's all well and good. I mean it solves the problem near term but you know the fact is that this is monetization uh at large uh because who buys this debt is predominantly banks and if banks buy government debt they're
printing money effectively so it's not the Fed that's doing the QE it's being pushed in that direction by the Treasury and it's not going to end well because you know N GDP in other words nominal GDP is racing ahead and that
what the bond market is currently pricing and so it looks as if bond yields, you know, could rise appreciably. And if you want a heads up in Japan. Uh they're going down the same path, but they're um, you know, couple
>> And and they're spending about 10% of every single year on currency intervention at this current run rate, which is >> remarkable for a country facing it.
certain point here. You know, and I'm thinking about what's going on in Since the Fed meeting last week, we've seen the 210 spread widen out a little bit here. Went from around 32, 33 basis points to into the mid40s. So 10 basis
points, not huge, but also noteworthy and eye-catching here, even as stocks framework you view treasuries as collateral within the system as part of the plumbing of the system itself. So right now, given how the yield curve has
been moving, what is the Treasury curve telling us about the state of collateral liquidity and ultimately the risk that bond traders are bearing right now? situation is getting worse and I think you can see that both in terms of uh uh
of rising yields. Uh so that's basically denting uh collateral, but the other important is looking at the volatility of that collateral. In other words, the move index and the move index is definitely trending higher. And I think
QR tomorrow the the detail of the announcement uh basically what they're much Treasury buyback is going to be announced. And those are sort of two critical numbers because it pretty much says you know whether the Treasury
stroke Fed want to control volatility and in other words to sort of cut a long story short whether they want to stop the yield curve steepening again. Now, I think my read of what Kevin Walsh was saying last week was that he wants the
market to do the tightening for the Fed. In other words, read that as saying he wants or is prepared to allow uh longer yields to rise a bit, okay, a bit in inverted commas. But he's also envisioning that the curve will steepen
because what he also says in the same sentence that he's basically going to allow uh reserves in the bank, bank reserves to remain ample. So that means curve. They're allowing the back end of the curve to rise. So my reading of what
he was saying last Wednesday was that the Fed is banking on a steepening yield curve and that's pretty much what we've been seeing. Uh it's reversed the trend of the first uh six seven months of the year which has been a very clear u you
know flattening of the curve. So I think this reversal is really what the Fed has been secretly planning. Maybe >> we get that will work as a different story. uh you know at the initial reaction when we had this Fed meeting
dollar seems to be coming out of the gates strong. It was sitting close back to its yearly high and then we got the intervention in the Japanese yen last intervention in the Japanese yen last week here. It it feels like this may be
rallying a little bit. Dollar liquidity in the market is perhaps increasing, >> I think I think that makes sense. >> Yeah, it it makes a lot of sense. I mean know if the I mean we don't know the true scale of this yet but you know if
the if the treasury has intervened I mean that's effectively uh putting liquidity into the markets uh for sure I think that that's one factor but the other thing is that you know Kevin Walsh said that he reaffirmed this ample
reserve environment and that basically is saying there's a lot of money at the markets and that's clearly what they're aiming at doing and if there's liquidity near- term term may not be going for bonds and I think what you've seen
stock market picking up and the bond market you know drifting off uh and that would be I think a pretty you know decent interpretation of that move. >> Are we closer to a dollar liquidity squeeze or a dollar liquidity relief
>> Well I mean my view would be as if if and when and I think it's a question of think they're going to have to because the bond market, you know, is more or less screaming that if you look at the spread between repo and 2-year uh
Treasury notes, I mean, it's basically signaling and it all it's pretty much correct. And in actual fact, as an aside, I did an AI uh back test and it said, you know, 85% of the time the 2-year is right on predicting the future
course of Fed funds rate. And that would say that you're looking at certainly a couple of hikes coming down the road. So, as soon as the Fed starts to engage that, my view would be that the dollar starts to pick up. Uh, and I think that,
you know, that inevitably if the Fed tightens, the dollar goes up, I think >> China used to be one of the biggest swing factors in this whole conversation expansion in China, which support commodities, emerging markets, just
here. But it just seems from what I've been looking at, China's credit cycle is a lot more constrained right now. Is China still playing a meaningful source that these cycles go in es and flows. Are we more near of the tr for the China
>> Well, I think the the the key point cycle in the west led by the Fed is basically beginning to roll over as I said, but if you look at the Chinese cycle, it looks like it's the opposite
phase of the cycle. It's beginning to pick up. And one of the things that I mean in my view what China needs to do is to uh basically pump a lot of liquidity into its economy. Uh China's the only major bond market where yields
are dropping. Uh effectively they're suffering debt deflation. Uh China just at the history of debt deflations. I mean it really does kill economies. And as soon as they can which basically means devaluing the yuan domestically.
Now I'm making that distinction between external and internal. But they've got to basically print money internally. And what that means is if they do that, the gold price goes up because uh gold is a fantastic monetary inflation hedge uh
for domestic Chinese. That's what they love. Now uh the fact is that we saw gold going up until we didn't. And basically since uh what around March or thereabouts, we've seen the gold market begin to come off quite noticeably. Now,
interestingly enough, if you look at the detail of People's Bank of China liquidity, they turned the money tap off on March the 2nd of this year, uh, and they only restarted it again basically the day of theou. Now, if you look at
that, uh, uh, that timeline, in other words, when Iran tensions began, the Chinese cooled their economy. And when it looked as if the Iran tensions were over, they restarted growth again. And I think China has basically deliberately
uh, tried to cool the economy. So import demands for crude uh are are dimminimous now what they're doing is they seem to be restarting and I would imagine that weeks and months is the gold market picking up. And the way that we tend to
see this, albeit crudely, but it's not a bad heads up that the People's Bank of China drives the gold bullion market whereas the Fed and other central banks tend to drive Bitcoin. And if you look at that uh that differential, that's
Yeah, you've been talking a lot recently about the shift towards more industrial policy, defense spending, now AI infrastructure that's already on top of the energy security and reshoring that the Trump administration's been
trying to accomplish here. But these all feel like they're becoming a bigger part you and I were kids, this kind of state capitalism wasn't necessarily the tip of federal government uh policy here in the United States. So the question I have is
does government injected liquidity extend the cycle or is it distorting prices and creating bigger imbalances that we're going to have to digest at some point in the future? >> Yeah, I mean I think a great point. I
think it it extends the business cycle for sure. Uh does it extend the financial cycle? I think that's a moot point. My view would be that I would I coming back to what I said at the beginning, all money that's anywhere
if it's being drained out of financial markets to feed a strong real economy, growth really at the expense of dull asset markets. And I think that's pretty Secretary Besson has been arguing for
favor of what you might call Treasury QE. In other words, the Treasury uh leads uh and the Fed takes a back seat. Uh we've had two or three years now of Fed QE, which has caused this enormous wealth divide. Now it's the turn of Main
Street and it looks like uh you know the US economy is on a roll and you know the is now being picked up by a lot of governments worldwide. Everyone is now talking about fiscal flexibility. Uh the Japanese are talking about big
infrastructure spend. Germany is talking about big infrastructure spend plus always spending anyway. So that's not really a new a new event. that uh you know basically Europe is moving very much closer uh to the US playbook
this sort of uh interminable criticism of what the US does but Europe is following um and I think a lot of countries are in the same frame now >> it's kind of remarkable coming out of the 2000s and 2010s when austerity and
secular stagnation were kind of the name of the game in town for every major uh you know fiscal authority in the world Arian wrote that book I think central banker is the only game in town and how when you you get central banks driving
massive imbalances here. And maybe the fiscal authorities are catching up, but things back to normal or into balance. So, let's just look for a signal here, interviews, they want to know something like the quick and dirty. So, if the
liquidity cycle is turning, right, what market, what asset class is going to give us the cleanest early warning that the liquidity conditions are changing the hatches? Well, I think the two things to watch would be one is to see
Bitcoin. If you're looking at the uh let's say the western liquidity cycle, that would be the greatest heads up. Uh and you want confirmation by looking at the yield curve. And I think that if uh I said that Kevin Walsh probably wants a
steeper curve, if he fails to get that and the curve starts to flatten more, um then I think that's another indication that liquidity is failing. I think in if China starts to pump in liquidity, the gold market is going to go up a lot.
an interesting thing to watch because it would tell us that there are actually two parts of the world and comes back to, you know, my thesis that we're in a This has been another episode of trading trends. He's been Michael Howell, CEO of
GL Indexes, former CEO of Crossber Capital and author of Capital Wars: The while back. You should read it, too. It's a good one. Michael, thanks for joining us here on Tasty Live. >> Great pleasure, Chris. Thank you.
more interviews. Again, you've been watching Tasty Life.