Courtesy of Pam Martens
By Pam Martens and Russ Martens
The chart above has been compiled by the St. Louis Fed using the New York Fed’s data for its issuance of Reverse Repurchase Agreements, otherwise known as Reverse Repos. What’s a Fed Reverse Repo? According to the New York Fed, it is when counterparties loan the Fed money in exchange for collateral, which is typically Treasury bills.
In the most recent action, we’re talking about the New York Fed, acting on behalf of the Federal Reserve, selling U.S. Treasuries to Wall Street banks, trading houses, mutual funds and government-sponsored enterprises in overnight and weekend deals and paying zero or next to zero as an interest rate when it buys back the securities.
Why would the smartest guys on Wall Street, who never let a loose dime slip through their fingers in order to get a larger cut of the annual bonus pool, be willing to loan the Fed money at zero percent interest? These are, after all, some of the same guys making 10-to-1 margin loans to dodgy family office hedge funds like Archegos in order to maximize fee income.
Everyone across Wall Street seems to have their own idea of what has caused Reverse Repos at the New York Fed to skyrocket during the month of May. One of the frequently expressed theories is that there’s a surplus of cash swashing around Wall Street as a result of the $1.9 trillion stimulus bill passed by Congress in March and the attendant surge in deposits into banks and money market funds.
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