This is how the Treasury General Account (TGA) will soon impact liquidity.
At the July QRA, the US announced its intention to replenish the Treasury General Account (TGA) up to $850 billion by the end of September.
That would represent a very rapid increase from today’s roughly $400 billion level – such a fast pace of TGA replenishment was only seen a handful of times in the last 10 years.
What happens when the Treasury replenishes its TGA?
And why does it matter for markets and the economy?
Take a look at the T-Account below.
When the government wants to rebuild its Treasury General Account, it issues bonds (Step 1) but not for the purpose of ‘’financing’’ money creation – rather simply to rebuild its coffers at the Fed (TGA).
As you can see below, a TGA rebuild ends up with a reduction in bank reserves (steps 2 and 3) and no creation of money for the private sector as the money is used to refill the TGA instead (step 4).
Effectively, replenishing the TGA is an operation akin to draining liquidity (e.g. bank reserves) from the system.
Today, bank reserves are sitting at $3.3 trillion and given the ongoing QT and large TGA rebuild they could drop below $3 trillion soon.
That would be the equivalent of less than 10% of nominal .
The last time we experimented with bank reserves below 10% of nominal GDP was in 2018-2019, and this eventually led to pressures in the repo market in September 2019.
Pay attention to US monetary plumbing, and bear in mind that fast TGA replenishments rapidly drain bank reserves from the system.
Do you think this will matter for markets?
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