Global Markets Liquidity Returns in a Broken System | US Crypto News
Welcome to the US Crypto News Morning Briefing—your essential rundown of the most important developments in crypto for the day ahead.
Grab a coffee as global markets enter a period of unprecedented friction with the era of synchronized economic cycles coming to an end. While the US quietly restores liquidity, China remains locked in a state of deflation, and Japan’s rising bond yields threaten to destabilize global capital flows. This has created a fractured, multi-speed adjustment that will test investors and policymakers alike.
Crypto News of the Day: How the US, China, and Japan Are Now Moving Against Each OtherGlobal financial markets are entering a period of profound structural strain, as long-standing assumptions about synchronized economic cycles collapse.
Against this backdrop, investors now face a fractured global system, with competing forces shaping market behavior. The forces are:
- US liquidity injections,
- Chinese political constraints, and
- Japanese fiscal stress.
In China, structural constraints limit the government’s ability to pursue large-scale monetary interventions.
The scale of the problem extends from local government debt reaching ¥134 trillion ($18.9 trillion). This is dispersed across 4,000 financing vehicles and has been exposed by a property collapse that has destroyed key revenue streams.
Unlike Japan, which leveraged QE to stabilize its economy, China cannot monetize. Article 29 of Chinese law prohibits primary market bond purchases, and capital flight is severely punished. Debt functions as a political tool rather than an economic liability.
“Monetization would sever the control mechanism holding the Party together,” researcher Shanaka Anslem explains.
The result: persistent deflation, a slowdown in growth to around 4%, and a tightly managed renminbi (RMB, China’s official currency).
Analysts warn this will extend global disinflationary forces years beyond consensus, a phenomenon Anslem calls “the Long Grind.”
Fed’s Lagging Balance Sheet: The Hidden Risks of Post-QE TighteningMeanwhile, the US faces its own structural challenges. The Federal Reserve officially concluded its three-year, five-month quantitative tightening (QT) program on December 1, reducing its balance sheet by $2.43 trillion to $6.53 trillion.
Treasury securities dropped to $4.19 trillion, and mortgage-backed securities fell to $2.05 trillion, unwinding over half of the pandemic-era QE expansion.
Analyst Endgame Macro notes that the real danger lies not in the Fed’s balance sheet itself but in the lag of its effects.
The Real Danger Isn’t the Fed’s Balance Sheet It’s the Lag Behind It
When you zoom out and look at the Fed’s balance sheet, the pattern is almost comically predictable. Every crisis sends the line straight up. Every attempt to shrink it happens slowly, cautiously, and only when… https://t.co/MX68S8sesG
Tightening over the past two years has left households stretched, corporate bankruptcies hitting 15-year highs, and small businesses without a safety net.
Even with rate cuts and eventual QE, policy cannot instantly reverse stress already moving through the economy.
The Fed is now pivoting to Reserve Management Purchases (RMP), with officials expected to buy $20–$40 billion in Treasury bills per month starting in January 2026.
Here's a simple way to view 2026:
1. Fed increases Reserve Management Purchases (RMP) –> Bank reserves increase
2. Effective Fed Funds Rate (EFFR) ticks down (rate cuts) –> Bank lending ticks up
3. Deregulation of post-2008 GFC policies –> Looser capital requirements on… https://t.co/Htnh3VTFvm
Shanaka Anslem explains that this quietly injects $480 billion in liquidity annually while keeping the mechanics of QE off the books.
Bank reserves, already at $3 trillion, are set to expand, shifting from abundant to adequate and signaling changing conditions for risk assets, inflation hawks, and credit markets alike.
Japan’s Debt Crunch: The 30-Year Ultra-Low-Rate Era Comes to an EndAcross the Pacific, Japan is confronting a fiscal reckoning that may ripple through global markets, as revealed in a recent US Crypto News publication.
Japanese bond yields have surged, with the 20-year yield hitting 2.947%, the highest since 1998.
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