The U.S. current account balance has been in the red for years, yet the rise in the financial account balance is noteworthy.
Arthur Hayes, co-founder of BitMEX and a crypto analyst, suggests that the imbalances could force the Federal Reserve (Fed) to adopt a more expansionary monetary policy due to new tariffs imposed by Donald Trump. According to Hayes, without exports, it will be challenging for foreigners to purchase U.S. bonds, which could necessitate intervention from the Fed and the banking system. Supporting his viewpoint with a chart, Hayes presents a striking image of the U.S. financial balances, illustrating a consistent decline in the current account deficit while the financial accounts have shown upward momentum. This contradictory movement might lead the Fed to resort to monetary expansion in the future.
Financial Accounts Rise, Current Balance Declines
The chart reveals a clear divergence starting from the 1980s, showcasing how dependent the U.S. economy has become on foreign resources. The current account balance has been rapidly declining since the 2000s, projecting a total deficit of -1.153 trillion dollars by the end of 2024.
In contrast, financial accounts have surged to 1.246 trillion dollars during the same period, indicating that foreign investors continue to show substantial interest in U.S. assets. However, Hayes expresses skepticism about the sustainability of these capital inflows. He argues that if exports decline, there would be no foreign investors left to buy bonds, putting the U.S. borrowing system at risk.
Hayes makes a compelling claim that the Fed may have no choice but to reopen the monetary floodgates due to the U.S.’s financially dependent system. The phrase “Brrrr” alludes to the resumption of money printing or asset purchases, which may be necessary to maintain the functionality of the bond markets.
Trump’s recent tariffs could accelerate this process. While aiming to boost exports through protectionist policies, the immediate reduction in imports might limit the capacity of foreign investors to purchase bonds, potentially forcing the Fed and banks into action.
What Awaits Cryptocurrencies?
Macro-economic analyses from figures like Hayes not only affect traditional financial markets but also have significant implications for the crypto market. Historically, expansionary monetary policies have led to price increases in Bitcoin (BTC) and altcoins. If the Fed returns to “Brrrr” mode, crypto investors may seize this opportunity.
Additionally, a depreciating dollar scenario could prompt investors to seek alternative assets, boosting transaction volumes and interest in the cryptocurrency market. Thus, Hayes’ insights can be seen as not only an economic interpretation but also a strategic forecast for market movements.
