U.S. Fed accepts $756B in daily reverse repo operation • Hacker News Board

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

#61

Post by joosters » Thu, Jun 17, 2021, 7:39 PM UTC

MuffinFlavored wrote: post #35

rawtxapp wrote: post #4

Earlier 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?

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.

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

#62

Post by AnimalMuppet » Thu, Jun 17, 2021, 7:40 PM UTC

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…

> 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.

Not the first time ever. At least two money market funds "broke the buck" (that is, lost value) in 2008, IIRC.

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

#63

Post by devin » Thu, Jun 17, 2021, 7:42 PM UTC

MuffinFlavored wrote: post #35

rawtxapp wrote: post #4

Earlier 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?

In the case of inflation, your purchasing power will decrease. For example, there was a period during the 1940s (1941-1951) where if you held cash, t-bills, cash in a bank, or t-bonds instead of equities, you would have seen your purchasing power decrease by 30-50% over that time period.[0]

[0]: https://www.lynalden.com/may-2021-newsletter/

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

#64

Post by qeternity » Thu, Jun 17, 2021, 7:43 PM UTC

testfoobar wrote: post #51

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.

Except that it’s opt in based on liquidity needs, which is very different than tightening.

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

#65

Post by 1-6 » Thu, Jun 17, 2021, 7:45 PM UTC

mensetmanusman wrote: post #38

Unprinting the monies

If money is printed, can it ever be destroyed?

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

#66

Post by [deleted] » Thu, Jun 17, 2021, 7:49 PM UTC

[deleted]

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

#67

Post by alisonkisk » Thu, Jun 17, 2021, 7:51 PM UTC

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…

> 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.

Panic how? what will they do, withdraw the cash that banks don't want anyway?

I dont undertand the weird mythologizing of 0% interest rate, pretending transaction costa dont exist.

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

#68

Post by nverno » Thu, Jun 17, 2021, 7:57 PM UTC

1-6 wrote: post #65

mensetmanusman wrote: post #38

Unprinting the monies

If money is printed, can it ever be destroyed?

yes, taxes for example. The Fed has power to print and destroy

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

#69

Post by MuffinFlavored » Thu, Jun 17, 2021, 7:58 PM UTC

choeger wrote: post #54

MuffinFlavored wrote: post #35

Earlier quoted context omitted.

> 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).

> 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?

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

#70

Post by dcolkitt » Thu, Jun 17, 2021, 7:59 PM UTC

alisonkisk wrote: post #67

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…

> 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. Panic how? what will they do, withdraw the cash that banks don't want anyway? I dont undertand the weird mythologizing of 0% interest rate, pretending transaction costa dont exist.

I do agree with you that most commentators freak out about the zero bound more than is justified. Especially given the fact that negative rates have existed in Europe and Japan for a while without any major effects.

But generally, banks are extremely discourages, both by regulation and convention, from charing negative interest rates on consumer accounts. The first bank that "burns" funds in your checking or savings account is going to get assailed by a pitchfork wielding mob. So you're forced to borrow deposits at zero, and lend negative, which is obviously unprofitable. Negative interest rates do create a game of hot potato, where banks continuously try to offload their consumer depositors on one another.