Since the 2008 financial crisis, global economies continue to be shaped by governments' debt management strategies. Debt issuance has become an important tool used by states to fulfill their financial obligations.
At this point, we will examine the effects of Debt issuance on the four-year liquidity cycle and the characteristics of the current "Summer" period. We will also discuss a potential macro downturn scenario at the end of this cycle.
Four-Year Liquidity Cycle
The four-year liquidity cycle is a process in which economies experience expansion and contraction phases at regular intervals. This cycle usually consists of the following stages:
1. Winter (Crisis and Tight Monetary Policies):
- Financial crises and economic contractions occur during this period. Governments and central banks implement tight monetary policies and debt reduction measures.
2. Spring (Recovery and Incentives):
- The economic recovery process begins. Governments try to support the economy with incentive packages and expansionary monetary policies.
3. Summer (Growth and Earnings):
- Economic growth accelerates and earnings increase. Borrowing costs decrease and liquidity increases.
4. Autumn (Peak and Recession):
- Economic growth slows down and signs of stagnation begin to appear in the markets. At this stage, borrowing costs increase and liquidity decreases.
The Role of Debt Issuance After the 2008 Crisis
Since 2008, many governments have resorted extensively to debt issuance to finance their debts. This process has become an important tool for maintaining economic stability, especially in times of crisis. Central banks reduced borrowing costs by increasing liquidity with low interest rates and expansionary monetary policies. This made the debt burden manageable.
Current "Summer" Period and Increase in Earnings
We are currently in the "Summer" period of the four-year cycle. This phase is generally defined as a period when economic growth accelerates, earnings increase, and liquidity is abundant in the markets. However, at the end of this period there is usually a "risk-on" macro decline. Rising borrowing costs and reduced liquidity could slow economic growth and lead to market turmoil.
Potential Macro Drops and Risks
As we approach the end of the "summer" period, debt burdens and potential increases in interest rates may strain governments' capacity to manage their debt. Especially developing countries may face greater risks in this process. Rising debt service costs could negatively impact growth prospects and increase pressure on financial markets.
Debt issuance has played a central role in governments' financial strategies in recent years. The four-year liquidity cycle is a critical tool in understanding the expansion and contraction processes of economies. While earnings are increasing in the current "Summer" period, it is necessary to be careful about a potential macro decline that may occur at the end of this period. It can be said that the decrease especially on $BTC occurred during this period. Therefore, from this point on, the measures taken by governments and central banks will be important in managing this process. It is predicted that with the next sharp interest rate cut, things will turn around again and liquidity will quickly flow into this area with Trump.👍
