Monetary Matters with Jack Farley The Liquidity Divergence Between East and West | Michael Howell on Deteriorating Federal Liquidity While People’s Bank of China (PBOC) Injects Stimulus and Pumps Gold
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Oct 29, 2025 Michael Howell, founder of Global Liquidity Indexes and author of Capital Wars, shares critical insights on global liquidity trends. He highlights a concerning decline in U.S. Federal Reserve liquidity due to intense repo market pressures while China pumps over 7 trillion Yuan into its economy, drastically impacting gold prices. Howell warns of a growing East-West financial divide and predicts that 2026 may not be kind to financial assets. He also discusses debt-likelihood ratios and advises core allocations to inflation hedges, including Bitcoin.
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China Uses Gold And Liquidity Strategically
- China appears to be targeting a higher yuan-denominated gold price while injecting massive liquidity to devalue the real exchange rate.
- PBOC policy seeks to 'reliquify' the economy and may use gold to increase confidence and ballast the yuan.
Massive PBOC Injections Are Rebalancing China
- The PBOC injected roughly 7–8 trillion yuan over 12 months into money markets and likely needs to double that to meaningfully reduce debt strain.
- This liquidity push is lowering China's real exchange rate and lifting commodity and domestic asset prices.
China's Rapid Gold Accumulation Is Understated
- Official Chinese gold holdings are opaque; private holdings are much larger and China may be adding about 1,000 tons a year.
- At that pace China could rival U.S. official gold reserves within a few years, altering global collateral dynamics.
