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U.S. Fed accepts $756B in daily reverse repo operation

reuters.com

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Re: U.S. Fed accepts $756B in daily reverse repo operation

#131

Post by jkhdigital »

runbathtime wrote: post #81
onlyrealcuzzo wrote: post #28

Earlier quoted context omitted.

Taking a step back - "repo" is short for "Repurchase Agreement". Financial Institutions put collateral into an overnight market and receive cash, and then they "agree" to "repurchase" / give the cash back (plus some fee) for the collateral the next day - right? This is the "opposite" in that Financial Institutions put cash in and get collateral (treasuries) out - right? The transaction is essentially going in the "re…

So the banks are lending their cash to the Fed or (repo market), and holding the treasuries (making interest) to let other banks or the Fed borrow the cash for some reason overnight. The only thing I get from it is that banks are flush with cash and overnight rates should go lower because there is an abundance of cash being lent. Seems like a game. Must be nice to be a banker.

The whole point of this charade is to prevent negative rates. The Fed can put a floor on interbank lending of reserves by paying interest on them, but it also wants to keep a floor under the non-Fed overnight money markets. Reverse repo is the answer, as it can always offer a positive rate even when market participants refuse to.

Re: U.S. Fed accepts $756B in daily reverse repo operation

#132

Post by jkhdigital »

Judgmentality wrote: post #45
onlyrealcuzzo wrote: post #28

Earlier quoted context omitted.

Taking a step back - "repo" is short for "Repurchase Agreement". Financial Institutions put collateral into an overnight market and receive cash, and then they "agree" to "repurchase" / give the cash back (plus some fee) for the collateral the next day - right? This is the "opposite" in that Financial Institutions put cash in and get collateral (treasuries) out - right? The transaction is essentially going in the "re…

What's really weird is they're getting interest to park their money overnight now (it's been zero interest for a while until today). This is really smoke and mirrors though. Moving the cash into the repo market doesn't change anything, other than now it's an "asset" instead of a "liability." Yes, there are obviously legal differences here, but it's still the same amount of cash owned by the same entity, except now th…

> they're just inventing new ways to kick the can down the road

Yes, even mainstream voices are starting to say things like this. Hard to imagine that this doesn't end very, very badly.

The fundamental contradiction is that the Fed wants to goose economic activity with money printing, but simultaneously imposes capital adequacy requirements on banks to prevent systemic risks. You can't have your cake and eat it too; or, in the parlance of classical economics, there's no free lunch.

Re: U.S. Fed accepts $756B in daily reverse repo operation

#133

Post by jkhdigital »

rsp1984 wrote: post #79
joosters wrote: post #61

Earlier quoted context omitted.

To the banks, it's a debt and hence a liability. If you put money in your bank account, then the banks owe you money.

Yea, but you gave the bank the money first. Which brings us back to the first question: How is holding cash a liability? Are they worried about deflation?

SLR: recently imposed capital requirements on large banks. Banks don't hold cash, they hold reserves at the Fed. And reserves are included in the bank's leverage ratio, so by accepting too much cash the bank can end up pushing their leverage ratio beyond the SLR limit which is bad for business.

Re: U.S. Fed accepts $756B in daily reverse repo operation

#134

Post by jkhdigital »

MuffinFlavored wrote: post #69
choeger wrote: post #54

Earlier quoted context omitted.

Well, banks do not hold cash. Cash is always held by the central bank (that's where the other banks have their accounts). Nowadays, this can easily involve negative interest rates. So if a bank now buys some security back from the central bank, they effectively remove money from the system (and get that security in return).

> Nowadays, this can easily involve negative interest rates. Source? Does it? I thought negative interest rates were a thing in the EU but not in the US yet?

The Fed is adamant about preventing negative rates, which is in fact what the reverse repo facility is accomplishing--if market participants could not go to the Fed and had to conduct repo with banks, then the overnight repo rate could easily go negative when there's too much cash sloshing around.

Re: U.S. Fed accepts $756B in daily reverse repo operation

#135

Post by MR4D »

andrekandre wrote: post #117
aazaa wrote: post #41

It really helps to have a look at the graph: https://fred.stlouisfed.org/series/RRPONTSYD This is clearly the highest level of reverse repo since the program was introduced, by a wide margin. There are three factors behind this: 1. The Treasury has temporarily backed off issuance of short term debt as it drains down an overflowing General Account. https://www.reuters.com/article/us-usa-treasury-liquidity-ex... 2. Ban…

Reverse repo is when the Fed loans treasuries to banks, typically at very low rate and no more than one day. This avoids the need for the Fed to sell its short term treasuries on the open market. coming from a programmers mindset, my immediate reaction was "this seems like a hack, whats the root cause of the issue, we should fix that instead"... i wonder what us the root cause? or in economics, i guess its never so s…

I work in finance. It IS a hack, and a bad one, too.

I expect this will end badly as they keep kicking the can down the road.

A recession - a real one - would help us rest this problem, but the Fed is afraid of hosing all the 401k retirement money in the process.

Re: U.S. Fed accepts $756B in daily reverse repo operation

#136

Post by MR4D »

mistrial9 wrote: post #87
testfoobar wrote: post #53

Earlier quoted context omitted.

Sec. Yellen is operating close to the debt ceiling. It will take an act of Congress to remedy this. https://www.rollcall.com/2021/06/14/democrats-have-no-easy-o...

Q. How many US Presidencies have "operating close to the debt ceiling" and needed an "act of Congress" to continue on.. factual answers please, partisans

Different answer than you’re asking for, but the debt limit is probably not even legal. Congress authorizes the Executive branch to spend funds, not to manage the debt. The Constitutional question will probably never be answered, but my gut tells me if it is violated, that there is no real remedy.

Re: U.S. Fed accepts $756B in daily reverse repo operation

#137

Post by jkhdigital »

cwkoss wrote: post #129
samatman wrote: post #86

Earlier quoted context omitted.

Bitcoin would no longer be volatile if it expanded to represent an appreciable global fraction of liquid value. Which is a huge if! That's the maximalist bet, and I still have trouble believing in it even as I've watched intermediate predictions come true. If the BTC chain became a Schelling point, where all market players see it as their best move to hold some, then eventually a satoshi could be worth about a 2021 U…

The total value of all gold ever mined is just 10.5x greater than Bitcoin's market cap. It was only 6.1x at the peak in April. From my maximalist perspective, we aren't that far from Bitcoin becoming a viable global reserve currency (El Salvador just made it legal tender, other countries are investigating doing the same). The moon may not be that far away.

The legal tender point is the most important, as to whether or not Bitcoin will become a global reserve currency. The tipping point comes when entire chains of real economic activity can be settled in Bitcoin, and the friction of using Bitcoin for working capital fades away.

Re: U.S. Fed accepts $756B in daily reverse repo operation

#138

Post by jkhdigital »

bubbleRefuge wrote: post #106
znt wrote: post #31

Earlier quoted context omitted.

It is fake. The thing is is your average American would never even consider the ultimate possibility of a foundational collapse of their economy and currency. And it's not just the average American. Nearly all hedge funds etc have USD as their basis. Bitcoin, Gold, Stocks, real estate etc has a value tag that's denominated in Dollars. You open up your portfolio and be happy when the USD value goes up in a nice green…

I think for as long as the rest of the world wants to export its goods and services to America in exchange for dollars. Maybe a better question is who in the world wants to be the importer of last resort ? Who wants to run trade deficits ? Trade deficits are a real benefit to the importer and real cost the exporter, but it seems the rest of the world doesn't get this. They want to manufacture using sweatshops, pollut…

https://en.wikipedia.org/wiki/Triffin_dilemma

Re: U.S. Fed accepts $756B in daily reverse repo operation

#139

Post by cwkoss »

jkhdigital wrote: post #137
cwkoss wrote: post #129

Earlier quoted context omitted.

The total value of all gold ever mined is just 10.5x greater than Bitcoin's market cap. It was only 6.1x at the peak in April. From my maximalist perspective, we aren't that far from Bitcoin becoming a viable global reserve currency (El Salvador just made it legal tender, other countries are investigating doing the same). The moon may not be that far away.

The legal tender point is the most important, as to whether or not Bitcoin will become a global reserve currency. The tipping point comes when entire chains of real economic activity can be settled in Bitcoin, and the friction of using Bitcoin for working capital fades away.

Yeah, if this move plays out in El Salvador's favor, other countries are going to try to emulate it, and we'll start seeing significant trade flows settled in Bitcoin. That's when things will start getting really exciting.

That seems like a bright future to me, but my cynical tinfoil hat worries that the US will find some pretext to invade El Salvador to 'root out terrorists' or whatever so that dollar hegemony is not threatened.

Re: U.S. Fed accepts $756B in daily reverse repo operation

#140

Post by jkhdigital »

TMWNN wrote: post #88
znt wrote: post #31

Earlier quoted context omitted.

It is fake. The thing is is your average American would never even consider the ultimate possibility of a foundational collapse of their economy and currency. And it's not just the average American. Nearly all hedge funds etc have USD as their basis. Bitcoin, Gold, Stocks, real estate etc has a value tag that's denominated in Dollars. You open up your portfolio and be happy when the USD value goes up in a nice green…

>Because they can force the rest of the world to keep using USD at gunpoint? People and countries outside the US don't use the dollar because of the US military, any more than they use the Swiss franc because of the Swiss military. They use both currencies (and the UK pound, and the Euro, and the Japanese yen) because decades of experience show that the countries that issue said currencies are the least likely to def…

Countries started using the dollar because the US was the most powerful economy left standing after WW2 and thus the only trustworthy issuer of currency. The petrodollar system helped things along even after economies were rebuilt, as it meant that anyone who needed oil (i.e. everyone except OPEC) would also need to keep dollars on hand to pay for it.

After decades of this, we've reached the point where the US Dollar is so deeply embedded in nearly every global supply chain that everyone needs it all the time. I don't think it has anything to do with being transparent about financials or unlikely to default; it's just accepted everywhere and has a better stock-to-flow ratio (i.e. stability) than the alternatives.

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