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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

#31

Post by znt »

enraged_camel wrote: post #14

This might be an unpopular opinion, but the economy we have right now feels quite fake, for lack of a better word, in the sense that the official numbers that are reported don't seem to reflect its actual health. I find it deeply concerning that every warning sign is summarily dismissed as "transitory" and the government and the Fed continue to drive full speed ahead.

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 color.

But what happens when USD gets diluted and debased so much that it's not possible to stop anymore. Are we not past point of no return already?

Debasement of currency marked the end of the Roman empire, why would American empire be any different?

Because US has nukes?

Because they can force the rest of the world to keep using USD at gunpoint?

For how long?

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

#32

Post by bob33212 »

enraged_camel wrote: post #14

This might be an unpopular opinion, but the economy we have right now feels quite fake, for lack of a better word, in the sense that the official numbers that are reported don't seem to reflect its actual health. I find it deeply concerning that every warning sign is summarily dismissed as "transitory" and the government and the Fed continue to drive full speed ahead.

It is fake in the sense that billions of dollars are being minted by crypto without any real use case other than theoretically fixing the financial system "someday". But fake stuff has always been a big part of the economy. Realtors extract 6% of most real estate transactions, but provide minimal "real" value, for example. The important thing is that inflation isn't running away and also businesses are not shutting down rapidly, causing a cascading effect of more businesses to shutdown and fire even more employees.

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

#33

Post by BenoitEssiambre »

Zelphyr wrote: post #2

Can someone provide a ELI5 for this?

Central banks raised interest rates a tiny amount from 0 to 0.05%. Banks were like: we no longer want to borrow all this cash we weren't doing anything with anyways please take it back central bank.

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

#34

Post by MuffinFlavored »

guffaw5 wrote: post #7
Zelphyr wrote: post #2

Can someone provide a ELI5 for this?

Banks have a ton of cash, and they're worried about inflation. So, they store their cash with the fed (through a repo [repurchase] agreement) temporarily. [0] What is a repo? - https://www.richmondfed.org/publications/research/econ_focus... [1] Repos in charts - https://fred.stlouisfed.org/series/RRPONTSYD

> they store their cash with the fed (through a repo [repurchase] agreement) temporarily.

What does this gain them? Are they paid interest?

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

#35

Post by MuffinFlavored »

rawtxapp wrote: post #4
Zelphyr wrote: post #2

Can someone provide a ELI5 for this?

This was a good and simple explanation on why this might be happening: https://www.youtube.com/watch?v=O0fSPO7AW7k . tl;dw: too much money in the system, big banks don't want the liability, push it to money market funds which use short term treasury while treasury is trying to increase their long term debt and reduce the short term ones. essentially, not as scary as it sounds.

> big banks don't want the liability

How is holding lots of cash a liability?

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

#36

Post by thereare5lights »

znt wrote: post #31
enraged_camel wrote: post #14

This might be an unpopular opinion, but the economy we have right now feels quite fake, for lack of a better word, in the sense that the official numbers that are reported don't seem to reflect its actual health. I find it deeply concerning that every warning sign is summarily dismissed as "transitory" and the government and the Fed continue to drive full speed ahead.

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…

> Debasement of currency marked the end of the Roman empire, why would American empire be any different?

The fall of the Roman Empire had so many causes that to attribute it to one thing is misleading at best.

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

#37

Post by dragontamer »

ffggvv wrote: post #15
guffaw5 wrote: post #7

Earlier quoted context omitted.

Banks have a ton of cash, and they're worried about inflation. So, they store their cash with the fed (through a repo [repurchase] agreement) temporarily. [0] What is a repo? - https://www.richmondfed.org/publications/research/econ_focus... [1] Repos in charts - https://fred.stlouisfed.org/series/RRPONTSYD

that doesn’t really explain why they’d give the fed money for 0 percent interest if they are worried about inflation

A 30-year bond is 2.20% APY yesterday.

If inflation happens, the 30-year bond will likely rise with inflation: maybe 3% or 4%. It is better to store your cash today, than to "lock in" to 2.2% APY.

Next month, if inflation starts to kick in, maybe you'll get 3% over the next 30 years instead of 2.2% over the next 30 years.

-----------

Obviously, a 30-year bond is 'different' than cash. However, when you start looking at 6-months, 3-months, 1-month, and overnight lending rates... things look more-and-more like cash.

No one ever holds "cash" per se, its always better to lend it out (even for only 1 day, you wanna have that cash generate more cash). By betting on shorter timescales (ex: 1-month), you're really betting that the longer-time scale bonds (ex: a 30-year) will rise up.

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

#39

Post by eloff »

MuffinFlavored wrote: post #34
guffaw5 wrote: post #7

Earlier quoted context omitted.

Banks have a ton of cash, and they're worried about inflation. So, they store their cash with the fed (through a repo [repurchase] agreement) temporarily. [0] What is a repo? - https://www.richmondfed.org/publications/research/econ_focus... [1] Repos in charts - https://fred.stlouisfed.org/series/RRPONTSYD

> they store their cash with the fed (through a repo [repurchase] agreement) temporarily. What does this gain them? Are they paid interest?

They pay for the privilege of having the Fed hold their cash.

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

#40

Post by throwawaycities »

enraged_camel wrote: post #14

This might be an unpopular opinion, but the economy we have right now feels quite fake, for lack of a better word, in the sense that the official numbers that are reported don't seem to reflect its actual health. I find it deeply concerning that every warning sign is summarily dismissed as "transitory" and the government and the Fed continue to drive full speed ahead.

Not sure why you are down voted, everyone (when it benefits them) takes credit for the “greatest economy the world has ever seen” and “record stock market”, simultaneously they ignore record wage stagnation, record income gaps, record homelessness, record student loan defaults, record debt defaults of nearly every kind, record young people living at home to record high ages…I’d say record high unemployment, to which someone would inevitably point to the unemployment numbers and claim it’s actually record low unemployment, which, to your point highlights the farce and disconnect from reality.

The FED is sitting on trillions of taxpayer bailout money from the CARES Act, yet if you took about 1/8th of that money, government could wipe the entire student loan debt, but then you’d hear the media talking point screaming how we can’t afford it.

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