Liquidity is absolutely surging- but where is it actually coming from?

The Surge

Last week focused on the Yen Carry Trade and noted it as being one of the many marginal drivers of liquidity. With that clearly in the rear-view mirror, as yet another Yen intervention has occurred since that article was published, we need to confront a critical reality:

Dollar liquidity is absolutely soaring.

One of the primary reasons I became more cautious in late-summer/early-fall of last year was due to liquidity very clearly rolling over. Not only was the repo market in increasingly severe distress, the broad money supply was decelerating.

Nominally, M2 was still growing (and almost always does), but that's the wrong metric – the right metric is the rate of change of the money supply, and that started to roll over in the late spring of 2025.

M2 (broad money) supply, 6-month rate of change

But something notable has been happening recently: we've been seeing a huge surge of liquidity in the financial system.

The stock market is vertical. Bitcoin is 30% off its recent lows. But where it's coming from is curious.

Let's look at broad money first. M2, or the broad money supply, is a measure of the total amount of money in an economy, including physical cash, checkable deposits, and easily convertible ‘near money'.

Zooming in a bit and looking at just the past 5 years (and a shorter rate of change timeframe), we can see there was definitely a surge of this "broad money" in the past few months.

M2 Money and 3-month rate of change.

Remember, while everyone focuses on the Fed's money printing, a far larger driver (in absolute terms) is private bank credit creation. As Richard Werner has exhaustively proven, private banks print money from nothing when they extend a new loan.

In fact, private bank credit creation is a much larger driver than the Fed's with M2 over 4x larger than M0 (base money, including Bank Reserves and physical currency).

M2 Money Supply, M0 Money Supply, Total Bank Loans and Leases

The Fed's Money Printer

Most bitcoiners are probably imagining that the surge of liquidity is coming from the Fed. Of course, the Fed can and does print money.

When the Federal Reserve conducts Quantitative Easing ("QE"), they are printing money, specifically, what are known as bank reserves. They then use these freshly printed dollars to purchase various securities from the banks. Banks get freshly printed (digital) dollars, and the Fed gets an asset to put on its balance sheet.

Fed Assets versus their liabilities

Obviously, we know the Fed has been engaged in money printing. They are calling it "Reserve Management Purchases", but it's essentially QE just instead of long-term securities, they're purchasing short-term treasuries (to address the repo market issues seen in 2025).

Their balance sheet has grown by about $200 billion since they started these RMP's in November 2025. Bank reserves (which make up half of the M0 money supply), are about half of the offsetting liabilities, with a modest increase in the TGA making up the rest.

Bank Reserves

The Fed's money printer is surely a significant cause of the surge in liquidity.

But There's More:

The Fed is clearly driving some of this, but there's more to the story:

Remember the broad money supply? One of its components is surging- bank deposits.

As previously mentioned, M2 is actually a much larger share of overall credit creation as we can see here from the $611 billion increase in bank deposits since the first week of December (when RMP's started).

Bank Deposits, with trend line for approximate growth rate from 2024-2025

When a private bank goes to extend a loan to an individual or corporation, two things happen simultaneously:

  1. A deposit is created (bank's liability, your asset)
  2. A loan is created (bank's asset, your liability)

Since deposits and broad money are clearly surging, we must look at the more granular data to get more insight. Here is the data straight from the Federal Reserve.

Fed's bank asset/liabilities report, pulled May 10th 2026. Lines added for emphasis.

What we see is a few things:

  1. Overall bank assets (loans) are growing at a significant ~7-8%
  2. These loans are primarily Commercial and Industrial loans
  3. Reverse repos picked back up significantly in March after months of decline
  4. Loans to other commercial banks are growing at a very rapid rate

We don't get anything more granular than this, unfortunately. Is it AI and datacenter-related? If I had to guess, given the outsized role this one sector has had on the US economy over recent time, this is the most likely driver, but it's impossible to know for certain.

But, it's clear that this surge of liquidity is not just being driven by the Fed's money printing- private banks are also printing money at a very rapid rate, but not from the consumer or real estate side.

One thing is also certain: as liquidity surges, it eventually makes its way to scarce assets like bitcoin.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.