Reverse repo is where money goes to die 24 hours at a time. It isn't the opposite of QE because it is a 24 hour operation that reverses at the end. But string a lot of 24 hours together and you get something that behaves like Quantitative Tightening during the duration.
U.S. Fed accepts $756B in daily reverse repo operation
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Re: U.S. Fed accepts $756B in daily reverse repo operation
#52Earlier quoted context omitted.
The jump is substantial because the Fed raised the interest rate on overnight reverse repos from 0% to .05%, so the demand skyrocketed.
Note you are off by a magnitude: "as it raised the rate on its overnight Reverse Repo facility from 0% to 0.05%"
Thanks, I've edited it.
Re: U.S. Fed accepts $756B in daily reverse repo operation
#53It 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…
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...
Re: U.S. Fed accepts $756B in daily reverse repo operation
#54Earlier quoted context omitted.
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?
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).
Re: U.S. Fed accepts $756B in daily reverse repo operation
#55It 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…
Found this quite insightful. Thank you for breaking it down!
Re: U.S. Fed accepts $756B in daily reverse repo operation
#56Earlier quoted context omitted.
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?
It increases their regulatory obligations without increasing their profits.
Re: U.S. Fed accepts $756B in daily reverse repo operation
#57This 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…
> Nearly all hedge funds etc have USD as their basis.
This is false, many have CAD, EUR, and other currencies as their basis.
> Bitcoin, Gold, Stocks, real estate etc has a value tag that's denominated in Dollars.
This is false as well. You can measure BTC,Gold, stocks or realestate in any currency you want.
Do you really think Canadians denominate their real estate in USD? Why would BTC, Gold or stocks be any different.
The US denominates BTC, Gold, Stocks and real estate in USD. The reset of hte world uses their own currency.
Re: U.S. Fed accepts $756B in daily reverse repo operation
#58Earlier quoted context omitted.
No, but you can get a ~3.5% 30 year fixed mortgage for the same reason.
And if the inflation hawks are right, that's a great deal - the capital you owe, and the interest you need to pay, will vanish within a couple of years and you'll still own the house. Banks clearly don't think there's much risk of long term high inflation.
The bankers are not the ultimate buyers of mortgage bonds. The Fed is. So, these low interest rates are not a predictor of lack of inflation, but a reflection of policy. The government is taking this risk.
Re: U.S. Fed accepts $756B in daily reverse repo operation
#59This 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.
> 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?
you don't need to have sources to state an opinion on how things feel
Re: U.S. Fed accepts $756B in daily reverse repo operation
#60Earlier quoted context omitted.
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?
Because it's not actively generating value, and is in fact actively losing value thanks to inflation. It's legally considered a "liability" in the context of a lot of banking regulation.