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

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. Banks have been inundated with cash resulting from federal government transfers (stimmy checks, paycheck protection program giveaways, etc.).

3. Banks can't simply accept cash from depositors and be done with it. They need to convert that cash into an asset of some kind. And right now, the asset of choice is short term treasuries (exactly the thing in short supply).

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.

By running reverse repo, the Fed can prevent short term interest rates from falling below zero (they have briefly broken this level in recent months). Such an occurrence would send a very unexpected signal to markets and could result in panic as investors see the value of money market funds shrink for the first time ever.

Of course, you might ask why on earth the Fed doesn't just sell the treasuries it picked up by performing all that quantitative easing over the last 18 months or so. This is what's known as "quantitative tightening." If you want to see markets really freak out, watch what happens if the Fed were to suddenly announce a massive quantitative tightening program.

Whether or not any of this matters is not clear. The Fed still has some tricks up its sleeve to keep the train rolling. And once the TGA is spent down, that could open the path to much more short term debt issuance. Of course, if demand grows faster than supply at that point, things could get crazy.

To add to this, central banks don't lend out cash without banks pawning an asset in return. And they only do so on a limited time basis. The banks have to promise to repurchase the pawned asset at a certain date, hence the name "repo" (reverse repo from the central bank's perspective).

Central banks are basically pawn shops that get to create their own cash to lend out.

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 they're getting paid just to park it overnight.

I'm not saying the reverse repo market is nonsense. I'm saying the way the government has structured assets and liabilities in this instance is bizarre and seems like musical chairs. I've actually read up on this and am happy for someone to explain it to me further, but it really seems like they're just inventing new ways to kick the can down the road. I don't think they're actually solving anything; they're just making the problem worse and hiding the symptoms.

Life is relative. Every economy worldwide has been using monetary easing.

> 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.

opinion - feels - seems ?

Do you have any sources for your unpopular opinion?