The US “Liquidity Drain” in Full: A Global Battle to Defend the Dollar

Since October, a financial storm dubbed a “comprehensive liquidity drain” has been unfolding around the world. At its core is the goal of preserving the dollar system the US has painstakingly built. From Southeast Asia to Europe, from Asia to the gold market, capital is flowing back to the US at a startling pace. Behind this “liquidity pump” is collective action by the Federal Reserve, Japan, and even AI giants.

I. Signs of “Blood Loss” in Global Markets

The impact of this liquidity tightening is already being felt across multiple global markets:

• Southeast Asian markets: Indonesia’s stock market has seen massive capital outflows following an MSCI index adjustment, bringing the market close to collapse.

• European debt crisis: France’s 10-year government bond yield has broken above 5%, hitting its highest level since 2002. The spread between French and German 10-year government bond yields widened at one point to over 180 basis points, its largest since the 2011 European debt crisis, sharply heightening European debt risks.

• Asian markets: Liquidity is being rapidly drained from Hong Kong, China, South Korea, and other markets, which are facing funding shortages.

• Gold market: Gold prices continue to fall as capital flows out of the gold market and into dollar assets.

II. Where the Money Is Going: The US Becomes a “Reservoir”

So where is all this drained liquidity going? The answer is clear: the US.

• US Treasury market: Yields on US 10-year and 30-year Treasuries have fallen noticeably, indicating that large amounts of capital are flowing into the Treasury market, making US Treasuries a “safe haven” for global capital.

• US Dollar Index: The US Dollar Index has recently remained above 100, staying strong and showing that the dollar remains highly attractive.

• Japanese market: Japan is selling French government bonds and using the proceeds to buy Japanese government bonds, while joining forces with the US to “protect” the yen exchange rate and help the US tighten global liquidity.

III. Two “Hidden Drivers” Attracting Liquidity

In addition to the traditional US Treasury and dollar markets, two other important factors are drawing global capital to the US:

• Anthropic IPO: AI giant Anthropic is set to go public on the US stock market, with a valuation of $1.5-2 trillion. This will attract large amounts of global capital to participate in the IPO, further draining global liquidity.

• SpaceX and Tesla merger: Musk is considering merging SpaceX and Tesla, with the combined company’s market value set to approach $4 trillion. Morgan Stanley’s price target for SpaceX has reached $500, and the news has spurred the market, attracting large amounts of capital into related sectors.

IV. New Support for the Petrodollar System

The international crude oil market is also providing support for the dollar system:

• Geopolitical factors: The likelihood of a joint US strike against Iran is rising rapidly, and the market has already priced in this event.

• Rising oil demand: Relevant countries and regions in Europe and Asia are increasing their purchases of US oil and natural gas. These transactions require the use of dollars, further supporting the “petrodollar system.”

V. The Fed’s Next Move: More Rate Hikes

Taking all these factors together, one clear conclusion emerges: the Fed will continue to raise interest rates, whether in October or December, because the US needs to further “drain” global liquidity. In the process, regions with weaker economic foundations will pay a very steep price.

What makes this time different is that Japan is playing a crucial role, helping the US tighten global liquidity. How long will this liquidity tightening last? There are two important things to watch:

1. The completion of the SpaceX and Tesla merger.

2. Circle rapidly expanding stablecoin adoption in 40 emerging countries, while the Genius Act is set to take effect in January 2026, further promoting the circulation of dollar stablecoins worldwide and reinforcing the dollar system.

This “liquidity drain” is a comprehensive, no-holds-barred effort by the US to preserve the dollar system. It will profoundly affect the global financial landscape, and we need to closely monitor what happens next.
Note: This article is compiled from public market information and does not constitute investment advice. Markets carry risks; invest with caution.