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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (172013)	5/20/2021 8:52:58 PM
From: sense	Read Replies (1) \| Respond to of 219082

Zero Hedge worth reading... but the comments almost always better than the content... A commenter adds this to the ZH explanation... "the banks have so many reserves and with short duration treasuries yielding 1 basis point (and tipping towards negative) the banks have to flip these reserves back to the fed to get around 7 basis points yield ---- so their money markets dont implode if they are forced to take those money markets negative without the RRP-------which would cause a run on physical cash. negative money market/cash rates or negative short term treasury rates very likely would be a rubicon (in an obviously inflating world) But, ZH has obliged with an at least mostly intelligble explanation: Translation: the Fed is taking Treasurys out of the market through QE purchases and putting them right back in via the RRP. Not only does this impair the proper functioning of the private repo market which has now run out of collateral, as bank are now forced to repo back all reserves they just got from the Fed back to the Fed, it also means that while the Fed still has plenty of assets to monetize courtesy of the Treasury's breakneck debt issuance spree, the banks that end up holding the resulting excess reserves are running out of space and are forced to park these brand new reserves right back with the Fed in the form of the O/N RRP. In short: the US financial system is starting to groan at every new POMO and every incremental new reserve created by the Fed's QE... and considering that there is at least $1 trillion more in QE to go, things could turn ugly soon. This, much more than any flip-flopping commentary from the Fed, confirms that we are rapidly approaching D-Day for the Fed when the central bank will no longer be able to conduct $120BN in QE every month - simply because there is no place to park the hundreds of billions in reserves created out of thin air every month - as sooner or later someone will figure out that the Fed is buying up debt only to turn around and repo out the resulting reserves each and every day, amounting to outright debt monetization with potentially calamitous consequences for yields and the US dollar. Repo Crisis Looms: Fed's Reverse Repo Usage Soars To $351BN, Fifth Highest Ever