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10 sats \ 9 replies \ @nout 18 May 2022
The concept of reverse repo is so crazy... this is just money printing with extra steps.
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11 sats \ 3 replies \ @jp OP 18 May 2022
To my knowledge, this is the first time RRO have sustained such a high level - I think a lot of economists are stumped on this.
Basic thought is that there is so much excess liquidity in the market that the banks cannot stuff money anywhere else in the economy that they feel comfortable with - highlighting just how over valued every asset in the market is.
As credit dries up, all the zombie companies will be exposed and employees will find themselves quickly unemployed :/
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0 sats \ 2 replies \ @faithandcredit 18 May 2022
In my opinion this means that assets are undervalued because the money and the liquidity is there its just refusing to invest currently. The money will enter the assets when it realizes that they are undervalued relative to the amount of dollars in circulation. So the way the market is currently valuating things is by assuming the amount of dollars is constant, but in reality trillions have been printed and because of this assets are still undervalued even if they are near historic highs. This is something the market does not yet accept which explains the current activity in the repo market.
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0 sats \ 1 reply \ @jp OP 18 May 2022
I would argue the opposite.
The current RRO market rate is 0.4% which means that banks are willing to lend out their money to the Fed at 0.4% - a lower interest rate than other assets (e.g mortgages, business/personal loans, etc.). If there were valuable assets to invest in, the Banks would be making loans out for the purchase of these assets (and not to the Fed)
Source: https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a1.htm#:~:text=The%20Board%20of%20Governors%20of,%2C%20effective%20March%2017%2C%202022.
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0 sats \ 0 replies \ @faithandcredit 18 May 2022
So im sorry for editing my post, but i only did it to clarify my point. But i see what you mean, the question is why are banks taking the 0.4% interest with so much money and why is the trend increasing? Imo its because they THINK other assets are overvalued simply because they are near historic highs? But when you look at the amount of money chasing that 0.4% then its kinda obvious that other assets are undervalued. Not sure if that makes sense
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11 sats \ 4 replies \ @kr 18 May 2022
i'm new to the topic, how do reverse repos increase the money supply?
is there any material you suggest reading?
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69 sats \ 0 replies \ @jp OP 18 May 2022
Also, if you're interested in learning more about Finance/Economics (in a straight-forward way), I would highly recommend Investopedia.com. Google anything related to finance, (e.g Reverse Repos - https://www.investopedia.com/terms/r/reverserepurchaseagreement.asp) and they will provide very good content
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69 sats \ 2 replies \ @nout 18 May 2022
I'm also new to this and have no idea what I'm talking about, but I heard Greg Foss explaining it in some podcast with Preston Pysh and that explanation made sense (the concept itself doesn't make much sense, but the explanation did). I can't find which one that was unfortunately :(
I also have this for reference: https://www.zerohedge.com/markets/repo-crisis-looms-feds-reverse-repo-usage-soars-351bn-fifth-highest-ever
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0 sats \ 1 reply \ @kr 18 May 2022
Ah I see, are you sure it was a conversation about reverse repos and not repos?
At first glance through this Fed article, it seems like reverse repos actually reduce reserve balances, though I'm unclear on how that affects money supply.
https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements
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69 sats \ 0 replies \ @jp OP 18 May 2022
RROs are the banks giving back money to the Fed because the banks have no other places in th economy to deploy/loan the funds out to.
The bank will give money back to the Fed, effectively reducing the money supply (temporarily)
Here is a basic summary of a RRO:
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10 sats \ 1 reply \ @02d10975a1 18 May 2022
What does this mean?
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80 sats \ 0 replies \ @jp OP 18 May 2022
RRO are essentially banks giving money back to the Fed for a very short period in time (only a few hours - generally for overnight holding - these are called "overnight repos").
The thought is that RRO peak when the banks have zero use for the money (e.g the banks do not have any worthy borrowers to make additional loans to).
People have been looking at the RRO as a measure of excess liquidity in the market that even the banks don't want to hold onto cash. Others have argued that this is indicative of real negative interest rates taking place because the bank sees holding on excess liquidity as an expense to their business (although I am not sure that this has been proven)
here is a basic summary of the mechanics of a RRO:
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