Macro Mechanics Series: Understanding the Liquidity Machine
Pierce & Pierce Research | December 2025
A Five-Part Series on Fed Plumbing and Crypto Markets
What You’ll Walk Away With
| After This Series You Can… | Brief |
|---|---|
| ✅ Explain how TGA swings inject/drain billions from markets | #1 |
| ✅ Understand why the $2.4T shock absorber is gone | #2 |
| ✅ Know what triggered the Fed’s December 2025 pivot | #3 |
| ✅ Distinguish “reserve management” from actual QE | #4 |
| ✅ Apply the 90-day lag framework to price action | #5 |
| ✅ Monitor liquidity conditions yourself using FRED data | All |
This isn’t a conclusion to believe. It’s a framework to apply.
Who This Is For
| ✅ Good Fit | ❌ Not For You |
|---|---|
| Want to understand why liquidity matters | Want price predictions |
| Tired of “money printer go brrr” without mechanics | Want trading signals |
| Need to contextualize macro vs price action | Need certainty |
| Zero prior Fed knowledge—we start from scratch | Already work at the NY Fed |
The Five Briefs
Read in order. Each builds on the previous.
Brief #1: The Treasury General Account
The government’s checking account
| Concept | What You’ll Learn |
|---|---|
| TGA mechanics | Rising = drain, Falling = injection |
| Zero-sum relationship | TGA vs bank reserves |
| Current status | $859B, drawing down ~$60B/month |
🔑 Key insight: TGA creates liquidity flows independent of Fed discretion.
Brief #2: The Reverse Repo Facility
The $2.4 trillion buffer that’s gone
| Concept | What You’ll Learn |
|---|---|
| What ON RRP does | Absorbs excess liquidity from money market funds |
| Why it drained | T-bill yields exceeded ON RRP rate |
| Current status | ~$10B remaining (down 99.6% from peak) |
🔑 Key insight: No buffer means TGA swings hit reserves directly.
Brief #3: Bank Reserves & The “Ample” Floor
The liquidity that actually matters
| Concept | What You’ll Learn |
|---|---|
| What reserves do | Cash banks hold at Fed for settlement |
| September 2019 | What happens when reserves get too low |
| October 2025 | Why the Fed pivoted before markets broke |
🔑 Key insight: Reserves near floor. Fed actively managing.
Brief #4: QT → QE (Balance Sheet Cycles)
The 42-month headwind that became a tailwind
| Concept | What You’ll Learn |
|---|---|
| QT mechanics | Letting bonds mature = draining reserves |
| December pivot | QT ended Dec 1, purchases began Dec 12 |
| Key distinction | Reserve management ≠ QE (different scale, duration, intent) |
🔑 Key insight: Maintenance-level support, not 2020-style stimulus.
Brief #5: Global M2 & The Liquidity Lag
Why Bitcoin doesn’t respond instantly
| Concept | What You’ll Learn |
|---|---|
| The correlation | BTC-M2 correlation 0.60-0.90 historically |
| The lag | 70-90 days for transmission |
| Current setup | Late 2025 M2 → Q1 2026 BTC |
🔑 Key insight: Today’s price reflects M2 from three months ago.
Why Now?
December 2025 marks a genuine inflection point:
| Date | Event | Status |
|---|---|---|
| Dec 1, 2025 | QT ended | 🟢 42 months of drainage stopped |
| Dec 10, 2025 | T-bill purchases announced | 🟢 $40B/month injection starting |
| Dec 2025 | ON RRP exhausted | 🔴 No buffer to absorb flows |
| Oct 2025 | Reserves hit floor | 🟡 Forced Fed pivot |
Multiple injection channels active. No buffer. Direct transmission.
Understanding why this matters—and why it doesn’t guarantee anything—requires understanding the mechanics.
Current Liquidity Status
| Metric | Level | Trend | Status |
|---|---|---|---|
| TGA | $859B | ↓ Drawing down | 🟢 Injecting |
| Reserves | $2.93T | → Near floor | 🟡 Managed |
| ON RRP | ~$10B | → Exhausted | 🔴 No buffer |
| Fed Balance Sheet | $6.54T | ↑ Expanding | 🟢 Tailwind |
| US M2 YoY | +4% | ↑ Growing | 🟢 Supportive |
Overall: Structurally supportive. Not a moonshot.
What You Won’t Find
| ❌ | Why Not |
|---|---|
| Price predictions | Liquidity is one input among many |
| Trading signals | Framework for context, not timing |
| Certainty | Every brief includes transmission caveats |
How to Use This Series
| Mode | Approach |
|---|---|
| First read | All five briefs in order |
| Weekly check | Reference Guide dashboard vs FRED |
| Price diverges from expectations | Return to Brief #5 (lag framework) |
| Fed headline drops | Return to relevant brief for context |
Start Here
Brief #1: The Treasury General Account →
⏱️ 12-15 minutes per brief • Beginner-friendly • No prior Fed knowledge required
Full Series
| # | Brief | Link |
|---|---|---|
| 0 | Introduction | You are here |
| 1 | The Treasury General Account | Read → |
| 2 | The Reverse Repo Facility | Read → |
| 3 | Bank Reserves & The “Ample” Floor | Read → |
| 4 | QT → QE (Balance Sheet Cycles) | Read → |
| 5 | Global M2 & The Liquidity Lag | Read → |
| — | Quick Reference Guide | Read → |
This publication is for educational purposes only. Not financial advice. Cryptocurrency investments carry substantial risk of complete loss.
Pierce & Pierce Research
Democratising Institutional-Grade Crypto Research
