Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

reuters.com

Post reply on HN
Print view View original

81–90 of 182 posts

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

#81

Post by runbathtime »

onlyrealcuzzo wrote: post #28
B4CKlash wrote: post #20

If you're looking for more information about reverse repos and this action generally, I found this piece incredibly useful: https://fed.tips/sico4-1/ Long but worth the education (if you're interested)

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.

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

#82

Post by rsync »

AnimalMuppet wrote: post #62
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.

That is correct.

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

#83

Post by jules-jules »

vmception wrote: post #48
MuffinFlavored wrote: post #30

Earlier quoted context omitted.

For anybody else who doesn't know what CeFi means: https://swissborg.com/blog/defi-vs-cefi

> There is no argument that the advent of blockchain democratised access to finance. You’d think MySQL would have been the tool to tackle this obvious use case over all these years if you read this forum

Didn't you get the memo, there really is no use case for blockchain.

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

#84

Post by Raidion »

gregwebs wrote: post #71

This event doesn't make sense if you have assumed that banks take deposits and then loan that deposit money out. In reality deposits only cover around 10% of the loan. This is called fractional reserve banking and it means that a bank loan is actually a money creation event! Cash might seem like an asset. But in reality the loan is the asset that pays the bank money and cash is the liability because the cash can be w…

Fairly new at this and don't work in the sector, just someone who enjoys this stuff.

I think it's because if the banks have too much cash, that's expensive because it depreciates. They don't want just "mattress money", so when too many people deposit and not enough people withdraw, banks have too much cash, and need a place to park it. If they can't park it anywhere, that means that they don't want more cash, which pushes the interest rates down. Fed has decided that interest rates going down is bad, so they basically say "hey, we'll take the cash off your books, give you a small interest payment for buying the treasuries" and now the banks don't mind taking more cash in.

Basically this is a way of keeping the interest rates higher on deposits, because the banks get subsidized to use that cash to borrow Treasuries, this gets unwound every night. So the banks can operate like they don't have too many deposit liabilities, even though they would without reverse repo.

I think this is a defense against inflation: If banks can't earn anything from cash, that means they have to push out more loans. Loans add risk/leverage (because it's that money creating event) and they also serve to increase monetary supply, causing inflation. Fed has decided that they'd rather control this process instead of leaving it to the free market in hopes that the situation returns to normal instead of causing additional inflation. This could be just kicking the can down the road, but what do I know.

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

#85

Post by stryker7001 »

ketzo wrote: post #60
MuffinFlavored wrote: post #35

Earlier quoted context omitted.

> 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.

is it more fair to say one reason they don't like holding cash because they have to pay interest to their depositors on it without getting any return on it?

So putting the cash to work (in a reverse repo) even at 0.05% allows them to convert it to an asset and generate some return.

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

#86

Post by samatman »

csomar wrote: post #77
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? And the alternative? The EUR which is held by an EU that will likely break in the future. The CNY which is held by China (great idea :) ) or Russia's currency which is inflating like there is no tomorrow. Bitcoin/Gold could be a hedge but it's quite volatile to preserve value especially for short/medium term holding periods. There is no alt…

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 US cent. It would then be unlikely to fluctuate more than a fraction of a percent in BTC/fiat pairs per day, unless one of those fiat coins happened to be hyperinflating.

If both of those things happened, then pricing things in satoshis would be more stable than pricing them in fiat, because that's what hyperinflation is: it's when inflation in a currency gets so bad that it becomes a bad unit of account.

The fact that there's no alternative to the USD at the moment is the best argument for the BTC chain forming that Schelling point. But! It hasn't happened, and contrary the maximalists, there is no law of nature which says that it will.

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

#87

Post by mistrial9 »

testfoobar wrote: post #53
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…

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

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

#88

Post by TMWNN »

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…

>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 default on their financial obligations, and are most transparent about their own financials.

Russians and Chinese themselves avoid using their own countries' currencies when abroad as much as possible because they are most aware of this. To put another way, the primacy of the dollar isn't a supply issue (something that the US directly forces), but a demand issue (it's the currency everyone else prefers to use).

(This is where you'll bring up the "petrodollar". No, the petrodollar isn't real. Well, it's real in the sense that oil is, like almost every other product, usually denominated in US dollars when sold internationally. What's not real is the theory that the US has a particular need for (say) Iraq back in the day to denominate its oil sales in dollars, as opposed to Euro. Or that Venezuela attempting to denominate its oil in yuan today surely augurs the collapse of the US economy tomorrow.)

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

#90

Post by eightysixfour »

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

The chart from 1940 to 2018 makes it look like the answer is "most of them." https://www.crfb.org/sites/default/files/DebtCeilingChart.JP...
Post reply on HN