Pillar Guide
What Is US Dollar Liquidity?
US dollar liquidity is the amount of usable dollars circulating in the global financial system at any given moment. It is not the money supply (M2) and not a single number from the Fed. It is the net result of four policy and market channels — Fed balance sheet, Treasury cash, money-market plumbing, and credit/risk pricing — that together set the buffer between risk assets and a funding squeeze.
Why dollar liquidity is the single most-watched macro variable
Almost every risk asset on earth — equities, credit, gold, Bitcoin, EM FX — is priced in dollars and funded with dollars. When the supply of usable dollars expands faster than demand, asset prices tend to drift higher even without earnings or fundamentals improving. When it contracts, the opposite happens, often abruptly.
This is why traders, allocators, and policymakers watch dollar liquidity rather than headline M2 or the Fed funds rate alone. M2 grows on a slow demographic clock. The funds rate moves only every six weeks. Dollar liquidity moves daily — sometimes hourly — and is the channel through which Fed and Treasury decisions actually reach markets.
The four channels that drive dollar liquidity
1. Federal Reserve balance sheet (Fed BS): The Fed expands liquidity by purchasing Treasuries and MBS (QE) and contracts it by letting holdings roll off (QT). Read more on the Fed balance sheet indicator page.
2. Treasury General Account (TGA): The Treasury's checking account at the Fed. When TGA falls, cash flows into bank reserves and lifts liquidity. When TGA rises — for example, refilling after a debt-ceiling resolution — liquidity is drained. See the TGA today page for the latest balance.
3. Overnight Reverse Repo (ONRRP): A facility where money-market funds park cash at the Fed overnight. A falling ONRRP balance can act as a hidden liquidity injection — that cash gets redeployed into Treasury bills and short funding. We track this with a conditional depletion-transition signal because the steady-state level itself isn't the signal.
4. Market stress and credit pricing: VIX, high-yield credit spreads, real yields, and the dollar index. These don't create liquidity, but they tell you whether liquidity is being demanded faster than supplied. A spiking VIX with widening credit spreads means risk capital is reaching for the exit even when policy is neutral.
How DollarLiquidity.com measures the regime
We aggregate the four channels into a single 0–100 score called the DLI (Dollar Liquidity Indicator). Each channel becomes a 5-year rolling tightness percentile. The four channel sub-scores are combined via a CISS-style quadratic form whose rolling 60-day correlation matrix amplifies the score when channels move together — because synchronized tightening is much more dangerous than any single channel acting alone.
The headline 0–100 reading is the trailing-5-year percentile of that composite. Above 80 means tight (top quintile of the last five years). Below 20 means loose. The middle is neutral. DLI is a coincident gauge of the current stance — not a crisis detector or a multi-day predictor. Read the full methodology for the underlying math.
How to use dollar liquidity in your own framework
Use the DLI as the regime filter, not the trade signal. When DLI is loose and improving, the path of least resistance for risk assets is usually up. When it flips to tight and deteriorating, prior dovish narratives need to be re-examined.
Cross-reference with the asset-impact view to see how the current regime has historically rhymed with SPX, Nasdaq, gold, and BTC. The correlation is real at the regime level but noisy day-to-day — anyone selling you a daily lead-lag is overfitting to one cycle.
For deeper context, every indicator page exposes its latest value, percentile, and contribution to the DLI score, with a written interpretation that updates as the data updates.