The Fed just triggered a liquidity crisis, and I can prove it in just three charts. But this isn’t just about repo markets or bank reserves. This is the moment the Fed loses control, and they know it. By the end of this video, you’ll understand exactly why money printing just became inevitable. Why stopping in December won’t work, and what this means for every single dollar you own. Now real quick, I’m Mark Moss. I’ve been selling companies through multiple boom and bust markets. Today, I’m a partner at a leading Bitcoin venture fund, and what I’m about to show you is the same data that we’re looking at, and the Fed has also seen, but hoping that you’re not paying attention.

So let’s go. All right, let’s just jump right in, and I want to show you three pieces of evidence that proves this is all real. All right, now for quick context, the repo market is where over three trillion dollars flows every single day. All right, banks with extra cash, they lend it out overnight to those who need it. They use treasury bonds as the collateral, sort of like a pawn shop, right? It’s the bloodstream of the financial system. Now when this market gets stressed out, bad things seem to happen, and fast. In 2008, repo markets froze up.

March 2020, they seized up again. Right now, well, they’re flashing the warning signs again. Now, this is so far. This is the secured overnight financing rate. Now it’s basically the average interest rate in the repo market. Now normally, so far trades about five to eight basis points below what the Fed pays on reserves. It’s been that way for basically years. But in September and October, so far spiked above the Fed’s rate. Not below it, but above it. When overnight funding in a three trillion dollar market trades above what the Fed pays, well, that tells you money is getting scarce.

That’s the funding stress that we’re seeing. Now the Fed’s standing repo facility is an emergency credit line for banks. When they can’t get the cash they need in the open market, they can borrow it from the Fed at 4%. But there’s a stigma. It signals that you’re desperate. Only 40 banks even have access to it. Now on October 31st, those banks borrowed $50 billion in a single day. That’s the highest usage since the facility was created back in 2021. Now for most of 2023, 2024, usage was basically at zero. But starting in September, the banks have been hitting it repeatedly over and over in the amounts they keep climbing.

Now this isn’t happening during a crisis, right? No pandemic, no bank failures, but banks are so desperate for overnight cash, they’re willing to look weak. They’re willing to borrow from the Fed’s emergency facility. Bank reserves, the cash banks hold at the Fed are at about 2.8 trillion. Now this is the lowest level in over four years. The Fed’s been running quantitative tightening since June of 2022, which is draining 2.4 trillion from the system. Now less reserves means banks have less cash to lend into the repo market. The supply of funding has been falling.

When reserves were abundant back in 2022, repo rates traded well below the Fed’s rate. But now reserves are at a five-year low. Repo rates, they’re spiking. So there it is. So far is spiking. Emergency borrowing at records. And reserves, they’re at multi-year lows. So that right there, that’s a liquidity crisis. The Fed sees this too. On December 1st, they’re ending quantitative tightening, or QT. They’re stopping the drain from the system. But here’s the problem. Just stopping the drain, that’s not enough. Because something else has been happening that no one’s even talking about. Something that’s driving demand for funding through the roof.

This is basically a supply and demand problem, right? Supply of funding, bank reserves, has fallen over $4 trillion to $2.8 trillion. Banks now have less cash to lend, but demand, it’s gone up. It’s exploded. So far volumes have more than doubled in two years, from $1.5 trillion a day to over $3 trillion. So we have fallen supply and rising demand. When that happens, prices go up, right? That’s why repo rates are spiking right now. But why did the demand double? The demand’s coming from the government. The US has $38 trillion in debt as of October 2025.

That’s 100% of GDP. Now the debt’s increasing fast by nearly $70,000 per second, heading to over $40 trillion. But we’re not in a war. We’re not in a crisis. Yet if you look at the spending, in 2025, the federal government is spending 23% of GDP. Now for comparison, back in the year 2000, it was only 17%. During the 2008 great financial crisis, it jumped all the way to 24%. During COVID in 2020, it hit 31% when they had to basically pay to keep the government open. But five years after COVID ended, we’re still at 23% still above the 2008 crisis levels.

And it’s not coming down. The CBO projects spending will average 24% of GDP for the next decade. Revenues, about 18%. So that means there’s a six-point gap every single year. The government is running $2 trillion deficits every year. And all of that debt, well, it’s all going to be financed. The Treasury issues bonds. Banks, money market funds, and dealers, they buy those bonds. And they use the repo market to fund those purchases. That’s why repo volumes are spiking. That’s why they’re doubled. Government spending is draining the liquidity faster than the Fed can replace it. And politically, there’s just no way to fix this.

Both parties agree on spending. They disagree on what to spend it on. Social security, Medicare, defense, nobody’s going to touch those. So that means the deficits aren’t going away, which means demand for financing keeps growing. Repo markets keep getting stressed. Now, on December 1st, the Fed stops QT, which sounds like that might work, right? I mean, stop draining reserves. That way we can stabilize the system. But the problem is the math doesn’t work. The Fed’s balance sheet is down to $6.7 trillion from $9 trillion peak. Reserves are at about $2.8 trillion, which is barely above the minimum $2.7 trillion level.

So stopping QT now means reserves stay flat. That’s great. They’re at about $2.8 trillion. But they don’t go up. You see, you’re freezing liquidity at a level that’s already stressed. Meanwhile, the government keeps running $2 trillion deficits. So far, volumes are still above the $2.2 trillion a day that demand isn’t going away. It’s structural. So on one side, reserves frozen at $2.8 trillion. On the other, the government’s running $2 trillion deficits every year. And the gap, that’s what keeps widening. So if we just stop QT right now, it stops the bleeding. But it doesn’t heal the wound.

And the Fed knows this. Lori Logan, president of the Dallas Fed and former head of the New York Fed’s open market desk. She gave a speech in October. She said, quote, if the recent rise in repo rates turns out not to be temporary, the Fed, in my view, would need to begin buying assets, end quote. Buying assets? That’s QE. That’s quantitative easing. That’s money printing. And she’s not theorizing here. She’s telling you what’s coming. Because, of course, she knows the math. Stopping QT won’t be enough. When repo stress persists, they’ll have to expand the balance sheet.

That means QE. But here’s the question. Now, the Fed did QE for a decade after 2008. From 2009 to 2020, an inflation stayed around 2%. The stock market tripled, but consumer prices, they stayed flat. So why is restarting QE right now? Why is it dangerous? What changed since then? Well, if we go back to before 2008, the Fed’s balance sheet was about 850 billion. And then they launched three rounds of QE and ballooned it to 4.5 trillion. We’re talking about massive money printing. And inflation from 2010 to 2019, it stayed flat. Now, economists claim that there was no inflation, but the stock market quadrupled from 678 to 3200 year after year after year of massive gains.

So QE did cause inflation, just asset inflation. We saw it in stocks. We saw it in bonds. We saw it in real estate, not consumer prices. But Ben Bernanke, who ran the Fed at that time, he liked this. And he explained, calling it, quote, the wealth effect. Basically, make people feel richer by pumping up their 401Ks, their retirement accounts, and they spend more. And for a decade, it worked. Wall Street got rich. Main Street saw cheap prices. But then COVID happened. The Fed’s balance sheet then exploded from 4.3 trillion to over 7 trillion in just three months.

It peaked near 9 trillion in 2022. And this time, inflation didn’t stay quiet. In 2020, inflation was barely above 1%. But by 2022, it peaked at 9%. For the first time since the early 80s, we had a real consumer price inflation problem. Why? What changed? Well, if you’re following along, it was government spending. In 2020, federal spending hit 31% of GDP, the highest since World War II. Stimmy checks, unemployment benefits, PPP loans, trillions were pumped directly into the economy. And sure, yes, there was a crisis. But five years later, spending is still at 23% of GDP.

I mean, compare that to the 2010s when it ran around 20% to 21% of the economy, right? The government ran deficits close to 15% of GDP in 2020 and 2021, the largest peacetime deficits since World War II. Now, that money went straight into people’s pockets. Stimulus, real spending in the real economy. And here’s the difference. In the 2010s, the Fed did QE, but federal spending was restrained, right? Money stayed in the financial system, so we only got asset inflation. But after COVID, the Fed did QE and the government opened up the fiscal floodgates.

So this caused money to flood into the real economy. Demand surge, consumer prices inflated, and we’re still running that playbook. Spending is still 23% of GDP. Deficits still around $2 trillion. The Fed basically is now left with two options. Option one, don’t restart QE. Let repo rates climb. Let funding rates stay expensive. What happens? Well, companies can’t roll their debts. Banks can’t balance their books. The plumbing seizes like 2008. Now, when this happened in March of 2020, the Fed launched nine emergency programs in just weeks because the Fed knew what happens when funding dries up.

Option one, it leads to a massive financial crisis. But they have even less ammunition today. You see, back in 2007, rates were at 5.25%, and the balance sheet was under $1 trillion. Today, rates are already lower at 4%, and the balance sheet’s now at $6.7 trillion. So they’ve already used the bazooka. And this isn’t bad mortgages that you can just, like, ring fence and roll over, right? This is structural government spending. $2 trillion deficits with no end in sight. You can’t bell your way out of that. And so if option one is really bad, then we have option two.

Option two is to restart QE, supply the liquidity, repo markets stabilize. The crisis is averted, but that money floods the economy. Stocks, Bitcoin, real estate, they all go up. But so does rent. So does groceries. So does healthcare. Both asset and consumer inflation because government spending is still elevated. So which one do you think they’re going to choose? Of course, they’re going to choose option two. Central banks always choose inflation over deflation. Always protect the financial system over price stability. Now, Ben Bernanke said it explicitly in 2002, quote, the US government has a printing press that allows it to produce as many dollars as it wishes at essentially no cost, end quote.

That’s the Fed’s nightmare, deflation and collapse. But inflation, they can create that on command. Now, the track record, of course, proves this. 2008, QE. 2012, Draghi’s, quote, whatever it takes program. 2020, nine emergency programs and massive QE. And now, well, they’re ending QT on December 1st. Pal already said that the Fed, quote, will need to expand the balance sheet again. Lori Logan said that they’ll need to, quote, begin buying assets. So they told you what’s coming, right? They’ll print. Maybe they’ll call it something else. Maybe they’ll call, you know, liquidity operations or they’ll call it not QE QE, but whatever you want to call it, money is going to be created.

And so if you’re holding dollars in a savings account, you’re about to get diluted. If you hold assets, stocks, real estate and Bitcoin, anything with real value or scarce supply, you’ve at least got a chance to keep pace with the printing press. But this isn’t neutral, right? QE creates winners and it creates losers. The top 10% own over two thirds of the nation’s wealth. They own 80% of the stocks. So when the Fed pumps asset prices, they benefit. But savers, they get left behind. And then the wealth gap, it widens, right? This is the data.

This is the pattern. That’s about to repeat. So the only question that you should be asking yourself is, which side of the line are you going to be on? Right? If we stack all this up, the Fed drain liquidity while the government spent like it’s still in a crisis, that triggered a funding stress funding crisis. Stopping QT just freezes the problem, but it doesn’t actually fix it. And when they restart QE, which is what they’re doing now, it’s not going to be like the 2010s. You’re going to see both asset inflation and consumer price inflation at the same time.

Now, if you want to see what that means for your wealth specifically, like which assets win, which lose, how to position yourself. If you want to go deeper on macro on Bitcoin, I send out a free newsletter every week where I break down exactly what we’re seeing, how we’re positioning. And there’s a link in the description if you want to join my free newsletter. Otherwise, thanks for watching. I’ll see you on the next one. [tr:trw].

See more of Mark Moss on their Public Channel and the MPN Mark Moss channel.