Fed’s Reverse Repos Spike to $1 Trillion. Cash Drain Undoes 8 Months of QE

Giant sucking sound of cash.

By Wolf Richter for WOLF STREET.

Back on June 9, when discussing the Fed’s gigantic cash-drain operation via overnight “reverse repos,” I mused in our illustrious comments: If the Fed at its June meeting doesn’t tweak its offering rate for overnight reverse repos and the interest rate on excess reserves (IOER), “my guess is that by June 30 (end of quarter), it” – the amount of overnight reverse repos – “could spike to $1 trillion.” The Fed then increased these two rates by 5 basis points. And today, that cash-drain operation shot up to nearly $1 trillion.

This morning, the Fed sold a record $992 billion in Treasury securities in exchange for cash, via overnight reverse repos (RRPs), to 74 counterparties. Yesterday’s overnight RRPs matured and unwound this morning, and were replaced, plus some, by today’s RRPs. You can practically hear that giant sucking sound of cash that the Fed is draining out of the financial system.

Reverse repos have the opposite effect of QE: They absorb cash. With these RRPs, the Fed sells Treasury securities and removes cash from the financial system. RRPs are a liability on the Fed’s balance sheet – cash that it owes the counterparties. With RRPs now at $992 billion, the Fed has undone over 8 months of QE (at $120 billion per month):

Quarter-end balance sheet clean-up by banks for regulatory reasons.

From 2014 through 2017, after years of QE, the Fed also drained cash from the financial system via reverse repos. For regulatory reasons, the banks shed cash at the end of the quarter via these reverse repos, taking on Treasury securities instead; hence the huge spikes at the end of the quarter, and at the end of the year, as indicated in the chart above.

This issue dissipated after the Fed began its quantitative tightening (QT) program in 2018, which drained cash from the financial system the proper way.

The quarter-end bank balance-sheet clean-up is why I figured earlier in June that the RRP balance would hit $1 trillion on June 30, when banks for regulatory reasons would shed cash for a day and replace it with Treasury securities, via the repo market.

This is a further sign that the financial system is creaking under a huge amount of cash that resulted from the Fed’s massive QE, and this cash has trouble finding a place to go.

So today’s increase of $151 billion (from $841 billion yesterday) was likely due to the banks’ shedding cash. It is likely that a part of this increase today will be undone tomorrow (July 1), and that the overall balance will decline some, which would prove this assumption correct.

Money market funds drowning in cash.

But the big issue over the past few months has been the flood of cash in money market funds, and they are trying to find a place to go with it. Now that the Fed pays 0.05% (annual yield) for overnight cash via RRPs, which is more than the yield of 3-month and shorter-term Treasury bills, that’s where some of the cash goes.

The New York Fed handles the overnight RRP trades. It discloses the total balance daily. But it does not disclose which specific counterparty it dealt with today. The list of approved counterparties includes big banks and broker-dealers (Primary Dealers), Government Sponsored Enterprises (GSEs such as Fannie Mae and Freddie Mac), and major asset managers with money market funds.

The actual amounts by counter party are disclosed only for the end of every month. The latest reporting was for the end of May, when there were $479 billion in overnight RRPs on the Fed’s balance sheet. Of them, 80% ($384 billion) were with just five financial institutions: Fidelity ($195 billion), Goldman Sachs ($60 billion); Morgan Stanley ($44 billion), JP Morgan ($43 billion), and Blackrock ($42 billion).

Each of these institutions has numerous money market funds, and each of these money market funds is a separate counterparty for RRP transactions. For example, Fidelity has 11 money market funds that are approved counterparties for RRPs with the Fed.

These funds can now earn a risk-free 0.05% (annual rate) on their excess piles of cash by handing their cash to the Fed, in exchange for Treasury securities.

Drawdown of the Treasury General Account (TGA).

Last spring, the federal government issued $3 trillion in new debt to fund the stimulus and bailout programs. At the same time, the Fed bought $3 trillion in securities, thereby monetizing the newly issued government debt – so that the market didn’t have to absorb that extra $3 trillion.

But the government didn’t spend that $3 trillion that it had raised. The unspent amounts remained in its checking account, the “Treasury General Account” (TGA) at the Federal Reserve Bank of New York, which peaked at $1.8 trillion in July 2020.

The Yellen Treasury has been trying to draw down the TGA to $500 billion by this summer. To do so, it cut back on the debt it issued, particularly short-term Treasury bills. At the same time, it is spending money hand over fist, and the drawdown is causing the cash in the TGA to flow out into the economy and thereby the financial system.

As of the Fed’s weekly balance sheet last Thursday, the TGA balance was $734 billion. When the TGA drops to the $500 billion level – $234 billion more to go – and doesn’t get drawn down further, the portion of the cash pressures in the financial system that is related to the TGA drawdown might abate or at least not get worse.

These cash pressures originated as a result of the Fed’s crazy and continued money-printing binge. Obviously, the real solution to the cash pressures would be to stop QE and then begin unwinding the assets on the Fed’s balance sheet. But that would be too radical a step to take. The Fed has mopped up $1 trillion in short-term cash via the repo market.

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  139 comments for “Fed’s Reverse Repos Spike to $1 Trillion. Cash Drain Undoes 8 Months of QE

  1. Richard K. says:

    Hi Wolf,

    Quick question. Is this money that is being sucked up by the Fed still considered part of the money supply? I’m sure I learned in Econ 101 when the Fed does Repos it is removing the money from the money supply?


    • Wolf Richter says:

      When the Fed sells securities and takes in cash it “destroys” cash. This is the opposite of QE where the Fed buys securities with cash, and thereby “creates” cash.

      • RobertM700 says:

        I thought US treasuries were cash equivalents. Especially with zero interest rates. Is not this really just smoke and mirrors?

        • Wolf Richter says:


          No. They’re not at all the same. The yield has nothing to do with the distinction.

          US Treasuries are securities that you can trade in the market.

          “Cash” is not securities. Cash is instantly available to pay for stuff.

          “Cash equivalent” are short-duration low-risk securities that you can trade in the market, and that are very easy to sell near face value. 3-month Treasury bills would be considered “cash equivalent” in terms of their liquidity and risk. 10-year Treasury securities are not “cash equivalent.” If you want to buy something with your “cash equivalent,” you have to sell those short-term securities, and then use the proceeds (the cash) to buy something with it.

        • This is what Bernanke called sterilization. They sell China 30y T bonds to settle the trade deficit, cash would be inflationary to the US. Every dollar equivalent in reserve China takes in they have to print their own currency. China takes T bonds through BIS, instead of cash. IOU. They institute capital controls, which don’t work. Fed buys T bonds on an IOU, (tries to keep the money in the banking system, as collateral, (sterilized reserves) and that isn’t working either) All same same. T bond is a cusip number with a name typed in space for registered own. Bond never goes anywhere, no paper trail. Things get ugly you type in any name you like, (your name perhaps?) and add liquidity as needed. Now Fed is bleeding cash. Shadow system was the basis for plan to convert China’s reserves to a Covid fund. That would have been interesting.

        • Joe Saba says:

          china gets it and quickly uses said T-bills to buy RAW RESOURCES all over world
          think they call it belt and road initiative
          they get what FIAT means
          govt calls it INFLATION
          people call it DEVALUATION or STEALING BY GOVT

      • raxadian says:

        Nom nom nom

        Nom Nom Nom.

        Playing pacman with the economy?

        • Thomas Roberts says:

          Hitting those big numbers proves the FED is doing things and is therefore a productive part of the government.

      • John Smith says:

        How is this different from the asset purchases? If they just discontinued overnight repos and stopped asset purchases wouldn’t everything just naturally expire and resolve itself?

        • zr says:

          “wouldn’t everything just naturally…resolve itself?”

          You mean the fed should stop intervening in the markets?
          You mean let true price discovery take hold?
          You mean let the free markets work?
          You mean the fed should trust the free markets?

          …some please have a word with John Smith.

      • Person X says:

        Sorry Wolf but this seems like the same article every day.

        We all want to know when this will end and what are the things we can see that would indicate it’s getting to a point where something has to change. We’ve been hearing how all this is going to end badly for a decade now and they just calmly keep being able to do the same thing. I have my gold and was out of the market for a long time missing out on a lot because I thought at some point it just can’t continue…but it just does.

        What and where is the point where things are forced to change and they won’t be able to keep doing things to prop it up because they will absolutely keep trying as long as they can and being forced to stop is the only way they will.

        • K says:

          No one knows how long this can go on. I believe that the same trillionaires/billionaires control other central banks not just the “Fed” and know that their “Federal” Reserve is a golden goose that lets them print US dollars and pay them to each other to bail them out of any losses, no matter how gigantic.

          See what happened to the $2 TRILLION in mortgage backed securities (“MBS”) that the “Fed” purchased in 2019-20 plus the $40 BILLION EACH MONTH that it has bought every month since then, reportedly. That $2 TRILLION was effectively stolen from Americans and others, who will thereby face increased inflation.

          Thus, the billionaires that control the “Fed” are desperately trying to stay in control to keep the goodies coming. The reversing of the Repo bailouts means that the “Fed” must have bailed out the banks enough (e.g., with MBS purchases) for the moment, because otherwise the overnight inter-bank repo rates would spike.

          Personally, I doubt that they can stay in control for longer. Ever hear of a greased pig contest: that is a contest in which various people in farming communities try to catch a small, agile, greased pig. Most fail.

          Likewise, as our economy falls out of control, with some wishing for its failure, and many factors operating against it covered in many articles in the media, I doubt that the billionaires can keep control despite their vast wealth. Nevertheless, they will try because the “Fed” is their precious, golden goose.

          If it failed dramatically, and it was replaced by a genuine, federal agency owned by the government (e.g., by requiring that the billionaires’ banks only keep bailouts in exchange for giving the government controlling stakes in those banks, etc.), the free goodies for the billionaires would stop. The 15 billionaires who Forbes’ Magazine reported own US media will not let a word of this desperate effort leak out.

        • Djreef says:

          By my best napkin math $4.8 trillion, then the Fed is out of additional shortish term bonds to loan out to those entities. There may actually be considerably less than this available depending on composition, order flow and carry. I would imagine the Fed would stop well short of this and actually begin reducing QE. They don’t want to walk up to the edge of that cliff and risk falling over.

      • NBay says:

        This is related….I think…..

        Watched LONG Congressional Crypto hearing and learned next to nothing……no, make that nothing.

        But one guy said when Paulson came to them wanting $700B to cover all the financial “side bets” that had been made, or there would be big financial trouble, he voted no. Was swamped by congratulating calls from constituents.

        Then when market started crashing he was swamped by calls from constituents pissed off about 401Ks, etc.

        That’s all I remember from watching hearing.

  2. MonkeyBusiness says:

    Quoted from SFGate

    “Both chambers of the California legislature approved Gov. Gavin Newsom’s plan to send additional $600 stimulus checks to residents across the state late Monday night, sending the legislation to the governor’s desk.

    In this second round, taxpayers who make up to $75,000 a year and did not receive payments in the first round will receive $600. Families with dependents would receive an additional $500 in direct payments. Another $500 will also be made in direct payments to undocumented families.

    State officials estimate that roughly two out of every three Californians will receive stimulus payments.”

    If that estimate holds true, we are talking about 1.5 billion dollar.

    • Wolf Richter says:

      $1.5 billion with a B? Hahahahaha, that’s petty cash these days.

      • MonkeyBusiness says:

        I agree amount wise. But it’s real cash going out the door, whereas the banks weren’t lending out.

        1.5 billion beats 0 dollars.

      • Xavier Caveat says:

        I remember when nobody dared utter the T word, but it ain’t no big thang now.

    • Anthony A. says:

      MB, “Payments to undocumented families.” Who are these people?

      • MonkeyBusiness says:

        Who knows, but “these people” will keep pumping money out. That’s my point.

        A bunch of landlords will also be compensated in full for lost rental income over the last year. That’s more money gushing out. What the Fed is doing right now is just greasing some gears in some market for fancy people, but money gushing out to the streets is what will keep inflation up. Right now it’s 1.5 B, next time it might 10 B, and who knows where it will stop.

        • Cas127 says:

          Everyone who paid their rent/mortgage is being played for a complete sap.

          Huge rent owed…taxpayers pay for it.

          Huge foregone rent revenue…taxpayers make whole.

        • YuShan says:

          Money has become worthless. Paying or not paying… it doesn’t matter anymore. No consequences. Need money? Oh well, we just create a few $T more. There are no consequences to this anyway.

          This has gone on for so long now and to such an extend that I think the fabric of society has been permanently damaged. We are not talking about a couple of weeks emergency support here. People have now been programmed in their brains that wealth can be created out of nothing. They won’t let that be taken away from them now!

          So what is the point of working? Why be prudent and responsible? The key to increasing wealth is not working your a$$ off and saving, but to receive handouts, rake up debt (that gets devalued), own bitcoin / stocks/ houses, which doesn’t do anything for society or economy. Working and producing anything of value is for suckers.

        • joe2 says:

          The beauty of the con is that dollars created from thin air are the same as dollars earned by the minimum wage worker.

          Boy are people stupid.

          BTW, it will be 10B then 100B then 1T. As the serfs celebrate their Biden dollars. Then the currency will change to digital dollars and the largess will be distributed by eyedropper to the woke.

        • Turtle says:


          “Money has become worthless. Paying or not paying… it doesn’t matter anymore. No consequences. Need money? Oh well, we just create a few $T more. There are no consequences to this anyway.”

          It almost makes me want to buy some crypto. Almost.

      • K says:

        The key point to always remember is that we are not bailing out the taxpayers or the renters, etc. What we are doing is bailing out the wealthy landlords and wealthy creditors who will actually get the money that the government pays these individuals.

        Other, more direct aid could be targeted to only helping the suffering families. It is not. Enabling, cheap, fast, hassle-free bankruptcy relief for persons who have gotten into huge debts due to the pandemic would not have imposes a ginormous, additional, MULTI-TRILLION dollar debt on government but would have cleaned out the outstanding debts: to the detriment of the trillionaires/billionaires.

        That is what we should have done since the trillionaires/billionaires have not paid US taxes for DECADES. See e.g., Fortune’s “Commentary: Apple Avoided $40 Billion in Taxes. Now It Wants a Gold Star?”

        This “aid” is like what happened between Germany and Greece. Germany used the ECB and pretended to bail out the Greeks but the German government was actually acting to protect German banks (i.e., German billionaires), who had lent billions to the Greek government, which got bribes to buy garbage submarines, build gigantic, Olympic facilities with German companies, etc.

  3. Bat says:

    So I agree this is a sign of ill health in the finace system, but what I don’t understand is where and how this breaks if the trend continues to worsen.

    • Wolf Richter says:


      This issue will diminish when the Fed ends its asset purchases. And it will go away when the Fed does quantitative tightening. That’s what happened last time, and I think it will work the same way this time.

      • Capthank says:

        If they do that we end up in a depression.

      • Beardawg says:

        This seems to set the stage for another 12-18 months of bull run in the stock market. When RRPs start to unwind as tapering begins, liquidity will neutralize. This $1T in RRPs is a sign to the market that liquidity is gonna be around a long time.

        • Wolf Richter says:

          I don’t think RRPs are going to “unwind” when tapering begins. But they’re going to grow less fast.

          It’s then when QT starts, they will unwind.

          That’s how it happened last time. Last time, QT started in Nov 2017, and over the year 2018 the RRPs unwound.

          There is no telling how the market will react. Everything is very different now, including lots of inflation (price increases and wage increases), which we didn’t have back then.

        • Tom S. says:

          Does it mean stock markets keep going up? Markets are forward looking. Lot of traps being set for retail investors IMO. Incredible power for those who can control the news flow. This may be the trap of the century. Politicians got 401ks and pension funds to watch out for. Everything is happening in hyperspeed so we could be in for some rapid oscillations.

        • Greg Sorter says:

          Why don’t banks and money market funds park their money at triple the rate in the IOER? George Gammon raises the thought that this isn’t about excess liquidity, but rather lack of confidence with counterparty risk, similar to Lehman

      • joe2 says:

        So if the Fed ends government treasury purchases, who do you see buying them at current rates?

        • Wolf Richter says:


          “…who do you see buying them at current rates?”

          No one. But lots of investors will buy them at higher yields, and so rates rise to where the demand is.

          There is always demand for Treasuries when the yield is high enough.

          QE represses long-term interest rates. Once QE ends and gets unwound, the market is freer to price these securities as it sees fit.

  4. Phoneix_Ikki says:

    So with $1T with the big T in reverse repo, the $64k question would be, how does this affect everyday people and the insane asset bubble we’re seeing since god knows when? My guess as quoting Smokey from Friday..”Not a Damn thing!”

    Expect this party to rocket higher, even draining $1T out of the market don’t really put any second thought to the market. Perhaps it’s a nothing burger to them. Also, pending home sales up in May, so yup, draining $1T not going to slow this animal spirit down anytime soon.

    • MonkeyBusiness says:

      That’s why I said earlier, it’s all Kabuki for fancy people. The thing is we had a Repo “crisis” back in 2019, and I can see it happening all over again.

      Buy high, sell low.

  5. Micheal Engel says:

    1) $1T SOS. $1.5T next.
    2) SPX : GAAPSPX = P/E 45.
    3) Market cap : GDP = 210%, WB indicator, highest ever.
    4) Revert to the mean will humble SPX and WLSH.
    5) Suppose, in the next decade, growth will be 0%, inflation : (-) 1.5%, the 10Y yield should be : 1.5%.
    6) With 1.5% annual deflation rate investor will get on $1,000 : $1,000x(1.015^10Y) + $150 dividends = $1,160 + $150 = $1,310.
    7) For the first time in 100 years, since WB was born, bonds yield will
    beat stocks and RE.
    7) If growth will be 2% with 4% inflation : $1,000x(0.96^10) + $150 =
    $665 + $150 = $815.
    8) After 250Y of Sir John Glubb revert to the mean, US gov risk premium is 1%. Investors should get : 2% growth + 4% inflation + 1% risk = 7%, but
    we get only 1.5% instead.
    9) Who is the patsy : Mueller.

  6. Memento mori says:

    In 6 months this thingy will be in 5 to 10 trillions range and no one would care.
    Fed can buy everything out there and ration and distribute as they see fit.
    Communism by stealth.

    • Wolf Richter says:

      Memento mori,

      “Fed can buy everything out there”

      The Fed isn’t buying with these RRPs. It’s SELLING.

      • Memento mori says:

        There is no difference.
        Government creates a piece of paper that Fed buys by printing out trillions.
        Now Fed exchanges same piece of garbage for the trillions they printed.
        All these transactions so primarily dealers aka bankers can get a fee by pretending to participate in the action.
        At this point, why doesn’t government cut out the middleman and go directly to the Fed and end this kabuki theater?

        • Wolf Richter says:

          “…same piece of garbage…”

          Send me any of this “garbage” that you have left over. I will dispose of it properly :-]

        • Memento mori says:

          Yes it’s a piece of garbage and you don’t want it.
          It’s unearned money, the proceeds of an economic crime perpetrated on the honest American that tries to raise a family and save for its future. It’s daylight robbery.
          In the end , the government can dispossess you of everything you have and put you in jail for life. You can also be the richest guy in the county and a homeless person will put a bullet through your head. A nation is a willingness to live together. All depends on kind of society you want to live.
          Fed is destroying the fabric of our society and endangering liberal democracy by ignoring her mandates, tinkering with currency, favoring one class of citizens over others and abusing her powers.

        • joe2 says:

          Here here. Memento mori, an honorable person. Few and far between in this age.

          As he explains the point of life is not to collect pieces of paper, but to interact responsibly with our fellows with honor, integrity, humility, equality, and charity.

      • jon says:

        Wolf, Yes FED is selling but there is absolutely no impact to asset market. It is going UP n UP.

        • Wolf Richter says:

          You/we have no idea what asset markets would do without this. S&P 500 has barely risen over the past three months since this started, compared to how it surged last year.

  7. Finster says:

    Are these liabilities reflected on charts of the Fed’s balance sheet? That is, if several months of QE are being neutralized, does that appear as a leveling off or decline in net QE?

    • Wolf Richter says:


      RRPs are on the liability side of the Fed’s balance sheet, not asset side. So yes, they’re reflected on its weekly balance sheet, but as a liability, and today’s value will be on its balance sheet to be released tomorrow afternoon. I might include it if I cover the balance sheet tomorrow.

      The other big liabilities on the Fed’s balance sheet are “cash in circulation” (your trusty paper dollars) and “reserves” (cash that the banks put on deposit at the Fed to earn 0.15% on).

      Not sure if I addressed your question appropriately :-]

      • Finster says:

        Thanks Wolf! I’ve been tracking the Fed’s balance sheet and just wondered if I need to adjust for repos separately. Basically looking to clarify when data being cited represents net cumulative QE, or net money “printed” to date.

  8. gametv says:

    Wolf – I wonder if draining money this way has the same impact as it would if the Fed pulled back the asset purchases, or even reversed those purchases in the open market.

    It feels like this operation is similar to a dark pool because it doesnt really show up in the marketplace, whereas the monthly purchase of Treasury bonds increases the demand in the market.

    So it seems like this operation is necessary to keep money market funds from having cash that cant be invested due to negative rates, but I am not sure it really pulls cash out of the system. If the cash was being used to increase loans, that would be different, but since banks like JPM are saying that they have cash waiting to be invested at higher rates, it seems like this is just sopping up money that is sitting there, idle.

    When you look at the amount of stimulus that hit the economy last year versus this year, it feels like there is more that hit in Feb-May than last year, by far, which makes no sense since we are exiting the pandemic.

    Feels to me that in another month or two, all that temporary consumer spending is going to be dried up, but unemployment/labor force participation will not get back to what it was pre-pandemic.

  9. Stupid says:

    Anyone notice usdebtclock.org is stuck? They issued 3 trillion last spring and the clock is still at 28 trillion. Hmmm……

    • Wolf Richter says:


      Forget the debt clock. It’s just an algo. Go to the Treasury Dept. website where they give you the actual amount of debt outstanding on a daily basis:


      The debt has been “stuck” at ca. $28.1 trillion because of the TGA account. See chart above. That is the government’s checking account. It had $1.6 trillion in it at the end of 2020, which is money the government borrowed in the spring of 2020 but didn’t spend.

      The government is now spending this money to draw down the TGA back to $500 billion. So it is spending $1.1 trillion that it borrowed in the spring of 2020, and therefore it doesn’t really have to add to its debt until the TGA is spent down to $500 billion, which is going to happen no later than August.

      Here is the long-term view, based on the actual debt outstanding, not an aglo:

      • Yancey Ward says:

        Wow. We need a bigger wazoo. That is going to hurt.

      • RedRaider says:

        In exponential growth terms it looks like we’re past the elbow and about to go vertical.

        Scary, scary, scary

      • Turtle says:

        Where’s Andrew Jackson when you need him?

        • Trail of Tears says:

          Yes! Let’s revive AJ, so that people can properly hang him for genocide. I personally would like to see the monster squirm in the electric chair.

      • prateek says:

        Wolf – looking at its sh trajectory it appears that the TGA will soon meet its 500 billion summer goal … post which treasury issuance and therefore yields should increase .. as FEd maintains the same.pace of asset purchases (RRP unwound is a possibility I am not.considering here).

        Also do RRP being overnight borrowings use short term treasuries (bills) as collateral? As you mentioned money market funds are drowining in cash amd even without Fed sitting on the front end and the short term rate (despite a recent small spike post hawkish :P fed meet) is still floored due to this money market flood. Post.TGA facade the Treasury may issue middle of the curve and longer maturities …whwreas FED cant certainly increase its buying program as it positjons to Taper ..that tells me the curve should steepen sharply post TGA 500 billion. Mortgages, Equity, and Bitdoges shouldnt like that

  10. historicus says:

    Overnight RRP …thats 24 hours
    right? and the impact lasts…..?

    • SpencerG says:

      I was thinking the exact same thing. We call these “overnight reverse repos” but aren’t they truly 24-hour reverse repos?

    • Wolf Richter says:

      It’s replaced by another overnight RRP, every day, day after day, as long as there is demand, forever if there is demand forever.

  11. jrmcdowell says:

    “This issue dissipated after the Fed began its quantitative tightening (QT) program in 2018, which drained cash from the financial system the proper way.”

    Yes, QT is the only way to undo QE. Reverse-repo is the tool being used to supply enough bonds to the market so that short-term rates don’t go negative. QE is the tool that 1) monetizes (nullifies) the government’s debt such that it doesn’t have to be serviced, 2) lowers long-term interest rates and 3) increases the money supply (see M2) via printed stimulus spending, increased deposits created from the bond buying and additional bank lending although that part is lagging.

    Reverse-repo does not undo these three pillars of QE.

    And the additional money supply created by QE combined with extreme financial repression (ZIRP) generates more buying pressure which leads to inflation and surging asset markets.

  12. K says:

    I can only assume that the billionaires’ “Federal” Reserve has chosen to do this to tame the coming hyperinflation by reducing the amount of cash available. However, given the huge leverage used by US companies and the huge margin debt used to buy stocks, I can see this getting out of control quite easily.

  13. sunny129 says:

    Reverse Repo purchase – loop ‘cancelling’ the QE done before. understood

    But, what’s the end game? What’s the effect if any, on the mkts?

    What do the investirs have to worry about? short vs long term?

    • jrmcdowell says:

      If someone has cash in a money market account at Fidelity, how does that affect the person’s investment decisions if Fidelity participates in the reverse-repo market?

      • Bead says:

        Fidelity is being paid now so it doesn’t affect my decision

        • jrmcdowell says:

          Fidelity and the others mentioned in this article are using the reverse-repo market as a way to earn positive interest for their money market funds and it doesn’t affect what investors do with their money market holdings.

      • SuzeB says:

        Fidelity gross expense/fee ratio is 0.34% for it’s Cash Reserves account (FDRXX). The fund’s performance in the last year is 0.01% so anyone storing money (including me) there is losing. What a great deal for Fidelity!

    • Wolf Richter says:


      I think — just guessing here — the “end game” for the Fed is to keep this whole thing from going haywire under the tsunami of cash, for long enough until they can address it properly by quantitative tightening. They know what’s going on.

      • KGC says:

        You are much more optimistic than I am. Personally I think they’re past performance shows they do not know what’s going on, and they have little accountability for this corner they have painted this country into.

        I’ll believe they have a grasp of reality when they start taking $1 billion a month (or even better, a week) out of the national debt.

        The failure of Congress to do their job as the fiscal branch of our government is a tragedy totally overlooked by the media.

      • Nathan Dumbrowski says:

        They are doing another experiment for sure. This is like taking out an overpowered real wheel road monster and the hitting the gas peddle too hard and long. Fishtail time. Panic hits so the attempt to correct is made. But not knowing the full extent of the power and velocity you over correct and are now heading in the other direction but just as quick you get whiplashed and try to over compensate to the other direction. Hoping and praying for the car to not careen off the road, hit another car, flip…..

        Seems like an enigma to trade cash to some inside friends overnight. Almost like money washing but at a level never seen before. The end is a lot of squeaky clean cash that never gets to be questioned or answered for

      • topcat says:

        I suppose the Fed could be praying for (and targeting) much higher inflation so that it can go the Volker route and pretend it had no alternative (TINA).

        • AlienHawk says:

          I agree with that. I think they are targeting for more like 5% inflation for two or three years. The government has future liabilities that are growing. Making the debt less valuable with inflation is one of the ways to manage these future liabilities. It is like a tax for poor people. They are walking a tightrope. If inflation gets out of hand, they will Volker the interest rates, which will hurt people as well.

      • sunny129 says:

        Thanks Wolf.

        Can they afford to do ‘proper’ QT at this point?
        Mkt is awafully sensitive to even talk of QT!
        The push will come from without like, sudden and massive increase in inflation number, I am just guessing.

      • Ben says:

        Wolf, my friend…

        After writing this post, you couldn’t possibly believe that we aren’t on the verge of experiencing the greatest depression in history right? Look at the exponential growth in margin debt, look at Biden pushing back forbearance on housing (kicking the can down the road), look at the criminal over-reporting of CMBS earning reports, look at all the hedge funds caught with their pants down illegally naked shorting the so-called “meme” stocks now held my millions of retail traders owning double (if not triple) digit % of the float with their finger on the trigger. The smallest pin-drop catalyst and POP… down goes the world economy.

        I think this bubble burst will be nothing we have ever seen before in American history, and oh boy will this ripple to the furthest ends of the earth!

  14. Auldyin says:

    A kite flyer from the UK.
    Our National Savings (govt debt straight to public) announced today that there would be a new ‘Green’ bond coming soon! Interest rate to be announced.
    I’m betting, in line with my thinking, you guys could soon also be seeing a ‘Green’ bond, direct to the public to refund the TGA and bypass the embarassment at the Fed.
    If it had a decent (3-4%) rate it could cut out the need for any more QE and could leave the Fed to pi** around with rates for as long as they wanted. Remember good old-fashioned ‘War Bonds’ to meet the ‘crisis’.
    Just guessin’

  15. JustTruth says:

    Fed is a digital printing press and a crap securities waste dump. But time is running out for them- the system is screeching towards a collapse. USD was always going to be sacrificed, since they fake the CPI numbers. The end is this insane, corrupt and despicable fraud is in sight. Once in motion, things tend to stay in motion, until they don’t.

  16. Nathan Dumbrowski says:

    Something or lots of things are missing from the equations. This astronomical amount of money “sloshing, sucking up, changing hands, counter parties” moving around is striking. Prior events are a factor lower than these last weeks. For every action, there is an equal (in size) and opposite (in direction) reaction. They are not doing this for shits and giggles. At least I hope not. Guaranteed money for the banks but at what cost

    • Tom S. says:

      The scale of the reverse repo going on is much bigger than any of the repo operations. So it’s not quite equal and opposite, especially when money, unlike energy, isn’t conserved.

  17. Maximus Minimus says:

    At 0.05% annual rate, these operations will have to be repeated every day to yields what amount to a rounding error. These better be done by computer bots, or it will be a net loss.
    Are things so desperate out there, or is something else going on?

    • RedRaider says:

      If I understand what is going on:

      1.0005**21 = 1.0106 monthly gain
      1.0106**12 = 1.134 annual gain

      Isn’t it interesting the annual gain equals John Williams’ Shadowstats inflation rate calculated using 80s version of CPI.

      Or is the 0.05% rate truly an annual rate instead of an annual rate quoted as a daily rate? If so, then nevermind.

      • Maximus Minimus says:

        It’s annual rate. If you start with base one, the formula is: x ^ 365 = 1.05, which gives x ~ 1.00015, a computer rounding error.

  18. Ron says:

    Bye bye 401 and social security

  19. Jack says:

    Oh never mind the reverse repos, another fake company joins the trillion dollars club!

    Who cares really, Wolf is decrying that the “congress didn’t do its job regarding fiscal responsibility “!!!

    But I can assure you that he voted for one of them rather than an independent, decent , local rep.

    It’s the prolonged pain of the productive members of society that’s been overlooked,
    The lady that is buying a box of chicken drumsticks for her little restaurant for $110 , a box that she paid $40 for only three weeks ago!!

    When money is not invested in productive means and technologies to lift society to a better future, its an energy lost, an opportunity lost and a disaster on the human population.

    Take a look at $100’s of billions that have being squandered to combat “ the elusive virus “ , read up on the history of the big pharmaceutical companies and their track record of honesty! it tells a story of massive stupidity and arrogance that is killing the very soul of a generation.

    The lessons of the past NOT learned is a tremendous pity.

    The lack of appetite for real investments vs the Maddoffian schemes that are springing around is the hallmark of this century now.

    The lack of critical voices to counter the generational destruction to a society, tells you how far we’ve been brainwashed.

    I read a stupid comment a few articles back about not being able to read a few paragraphs in a comment by a lady contributor here, this shows you the attention time span reduction in all of us!

    Lack of capability to reflect on our actions, lack of skill to analyze events , will doom America to the fate of Britain, a second rate power, or even worst , few third rate powers something akin to the warring medieval kingdoms .

    • Wolf Richter says:

      “But I can assure you that he voted for one of them rather than an independent, decent , local rep.”

      That’s funny. Or rather, tragic. I live in Pelosi’s district, and I voted against her out of protest every time in my feeble efforts to unseat her. But no one of stature ever dares to run against her, neither in the primaries nor in the general election. No democrat of stature would be allowed to run against her. She’ll leave office when she is ready to. Not a second before. She doesn’t even campaign. She sends out one postcard just before the election so people get the name right. And that’s it.

      • Jack says:

        Well done Mr Wolf!

        I guess you’re owed an apology here!

        It’s important to educate people that getting those professionals politicians out to pastures will do the nation a whole lot of good.

        and start reversing this crap partisanship that’s divided and destroyed the basis of sound narrative which is to afford every citizen the chance to fulfill what the constitution outlines.

        “.., the pursuit of happiness!”

      • Bobby Bittman says:

        “She’ll leave office when she is ready to. Not a second before.”

        According to the SSA Actuarial Life Table, Nancy will be giving up her seat permanently in approximately 9.1 years whether she likes it or not. Of course these lifers are not easily discouraged and she may view her death as a small setback to be overcome by running as a hologram.

        • Matt says:

          Pelosi has 5 kids. No doubt, there will be the Pelosi Dynasty. The name is too powerful to forego that opportunity.

      • tfourier says:

        Pelosi inherited Phil Burtons seat. Never been a competitive election in the 35 years. For very good reasons.

        Burton inherited the seat from Jack Shelly. The first of the current run of corrupt / incompetent Democrat SF Mayors.

        Shelly won the last truly contested election for that district. In 1949. From the Republicans.

        Welcome to SF politics. Were all the Republican politicians are usually incompetent. And all the Democratic politicians are corrupt and incompetent. A rule set in stone since the first election 1849. Which set the tone for all elections held since.

        Christopher was the last half way component local politician. Back in the 1960’s. Sunny Jim Rolph the last guy who got thing done. Back in the 1920’s.

    • Eugene says:

      IF USA does not manage the current crises,a phase transition catastrophe happens like USSR in 1990s,when production dropped 65%.Great depression was only 30% drop.And China may be the winner by 2030(IF China gets out their own debt crises)

  20. Sigh says:

    Wolf, you’re on the right track but off the mark. The solution is not to stop QE because YOU believe that’s how to best deal with this. If you spend time understanding the Fed, their mandates, and how they view and interact with their mandates, you quickly realize what is really going on. You also realize that screaming and pouting won’t change a thing – what you believe is right is a massive collapse of the financial system once covid hit. The Federal Reserve disagrees.

    The Fed is not tapering due to math. The TGA drawdown will lead to increased issuances in Q3 and Q4. If you are the Fed, you don’t risk a recovery by allowing yields to rise dramatically and disorderly.

    It’s not that I am defending the Fed – it’s just that I finally got over myself and started paying attention to reality, rather than the reality I want.

    I don’t believe this will end well, but I am confident it won’t end based on either of our opinions. The Fed will do what they feel is right.

    • RightNYer says:

      The fed will do what they feel is right for whom? For themselves or for the future generations?

    • BatHelix says:

      I agree with this completely and am of the same mindset. I had to get over myself and the thinking of “what they should do” or “what is right” instead of what they will do with their ability to do anything they really want to and with the true goals they have. Their goals are not what we think of when we think of what is fair or makes sense. They will keep doing this stuff and will undoubtedly do more unless there is something that prevents them from doing it. Clearly they cannot raise rates, they might do some superficial things to pretend but given how things are right now it might only take talking of one quarter point hike to crash things and then they will have their excuse to come in and do double what they already have.

  21. Tom S. says:

    There is literally nowhere productive for the money to go. We have hit the limit of what can be produced over time. Supply shortages are here and real. Inflation will exceed expectations, for some time…LOL…

    • RightNYer says:

      No, there are plenty of productive places for money to go, had the central banks not created so much fake money over the past 12 yeras.

    • kam says:

      The U.S. Federal Reserve is a Political creation, not created by God.
      And the foundation of the Fed’s power lays in the productive capacity of the U.S. nation, it’s future earning power, supported by the totality of U.S. assets.
      U.S. assets are exponentially becoming a mirage by the slight of hand, of the Fed’s debt and money creation.

  22. Michael Gorback says:

    So water is pouring over the gunwales via continued Fed asset purchases exacerbated by new direct dumps from rainstorms by the government and the Fed spins the RRP sump at an increasingly high rate to compensate.

    Do I have this right? This is a dog chasing its tail plus another dog’s tail.

    Fed comments and translations.

    Lael Brainard: “Vulnerabilities associated with elevated risk appetite are rising.” The combination of stretched valuations with very high levels of corporate indebtedness bears watching because of the potential to amplify the effects of a repricing event.”

    [Oh shit, look at the leverage!] “Repricing event”? You mean a crash? And just one?

    Robert Kaplan: “The Fed should start talking about tapering bond-buying soon.” & “I am beginning to feel differently regarding the advantages and drawbacks of the Fed’s QE purchases.”

    [We should have stopped this years ago. Why didn’t anyone warn us?]

    Eric Rosengren: “The mortgage market probably doesn’t need as much support now.“

    [We’ve completely hosed the housing market. Our work is done.]

    Mester: “As the economy continues to improve, and we see it in the data, we are getting closer to our goals. We’re going to have discussions about our stance on policy overall. Such includes our asset purchase programs and including our interest rates,”

    [We’re gonna continue to talk about talking about doing something to see how the markets would react before we move even one bip higher or take another swing at QT, even though market manipulation is not one of our mandates]

  23. J-Pow!!! says:


    What should I do for my second term? I am having fun blowing stocks/housing sky high and keeping zombie companies afloat, but don’t know what to do for an encore? Should I raise rates and crash asset prices so my homies can all buy low? This will kill the zombie companies, though. Some of my homies are there, too.

    • Anthony A. says:

      I think you should run for President next go around. Can’t do much worse and the perks are better.

    • MonkeyBusiness says:

      Buy Canada, Mexico, all the countries in South America and add those countries to the Union.

      It’s time to show the Australians that America knows how to do it BIGGER

    • Old School says:

      The Fed doesn’t have much gas left in the car. Yield on Sp500 around 1.4% and yield on 30 year Treasury around 2%. Can they double asset prices again so sp500 yield is 0.7% and 30 year is 1%. It’s possible, but system probably flies apart by then.

    • p coyle says:

      i’d go with some sort of central bank digital currency linked to some sort of social media credit score. that is, if i was truly evil…

  24. Ken says:

    Fed sells to banks Fed buys from banks

    We are all along for the ride
    In and out like the tide

    • historicus says:

      What’s the “juice” when a Trillion goes in and then goes back out?
      I think they call that a lock.
      Goldman and Blackrock JP Morgan the counter parties
      Who is running the Fed?
      The Fed has somehow gone from “temporary liquidity for banking issues” to the Master Digital Minter of the nation’s currency. Quite a leap.
      What power for one unelected committee, and likely one man to decide to FLOOD the economy with money (M2 up 27% in less than a year).
      Minting is a Congressional power per the Constitution and can not be delegated.
      And to PUNISH people holding dollars with CONTRIVED and ORCHESTRATED inflation is theft, pure and simple. It is a TAXATION.
      Taxation is also a Congressional power per the Constitution and can not be delegated.
      The accrued power of the Fed must be questioned, and their departure from the THREE mandates, which are nothing more than agreements and instructions that ALLOW the Fed’s existence, should be noted and objected.

  25. Franz Beckenbauer says:


    you are making a big mistake in your analysis: you make a difference between “cash” and “treasuries”.

    Now, what is the definition of “cash” ? It’s most salient feature is that it’s immediately liquidatable, i.e. you can “sell” it to someone in a nanosecond and you’ll get something back. But it pays no interest. And it is not rehypothecatable.

    Now, with the freak show the financial markets have become due to the banks’ (and the FED is one of them) insanity, tresauries are in fact cash, but they pay interest and can be infinitely rehypothecated.

    Now wonder the banks exchange their worthless dollars for them to get even more worthless dollars.

    • RedRaider says:

      I believe there has been versions of the dollar that did pay interest. In fact the payment schedule was printed on the back.

      Of course that was quite a while ago.

    • Matt says:

      I think it works this way: Reverse repo uses short term treasuries that are more “pristine” (so short-term that they are not rehypothecated), instead of longer term treasury notes and bonds. Banks don’t like dealing with longer term treasuries due to price variation, but the Treasury wants to sell longer term treasuries to lock in the low interest rates long-term. So the Fed provides short term treasury bills to the market to keep the rails of commerce greased.

    • Wolf Richter says:

      Franz Beckenbauer,

      “… you make a difference between “cash” and “treasuries”.

      If you have ever had an account with cash and Treasuries in it, you’d know that they’re not the same. And they’re not the same from an accounting point of view, a risk point of view, a bank regulatory point view… You’re assertion is just nuts.

  26. CRV says:

    One day these bankers will figure out that they need an alternative to convert currency into instead of treasuries of a technically bankrupt nation.
    They will be calling “Auuuuu” and “Agggggg”.

  27. Old School says:

    The big picture is Fed is letting politicians off the hook by giving them free money to buy votes. Very disappointing. Moral hazard to the max.

  28. Micheal Engel says:

    1) The DOW : lower highs in the last two months. NDX reached 4 out of targets, during stealthy distribution.
    SPX reached it’s first test target, but failed on the rest, failed on 3 out of 4 targets.
    2) There are $17T in the bank. Draining the TGA account from $1.8T
    to $800B is crumbs. The TGA money was spent on failed liberal states, the teachers entity and gov military proxies.
    3) RRP SOS, because somebody is in troubles. RRP is not to drain liquidity.
    4) Revert to the mean is coming, not WB indicator vertical extrapolation.
    5) With zero, or negative growth and debt deflation, in the next 10Y, US gov bonds will beat stocks and RE for the first time in 100 years.
    6) Cash is king. The Fed want a regime change, because they are
    afraid of deflation.

  29. Micheal Engel says:

    TLT:JNK in a TR for three month, pumping muscles for the jump.

  30. 2BFrank says:

    The main point is this is an overnight operation, (in the main), and thus doesn’t really have a long term effect, the Fed is not taking the cash and holding it, not even short term, 3 months, so it is really all an exercise in money shuffling for a tiny gain and no real lasting effect, in practice in every day life just ignore it.

    • Tony says:

      If it was that insignificant they wouldn’t bother doing it. And it certainly wouldn’t be shooting up to a trillion a day. This must be something serious.

  31. libdis says:

    I am still waiting for the collapse in the everything bubble, and waiting, and waiting and waiting……..

  32. I wouldn’t say they are unwinding QE, they are simply handing it off to the banks (at least overnight). There is no rational excuse for the Feds balance sheet to result in excess cash reserves at the banks unless they nationalized the banks while we were napping. The banks are being forced to monetize government debt at the point of a gun. The Fed could solve the problem by raising FFR. Are they (not) doing that to keep the yield curve from inverting? Why are banks in a rush to (borrow) toxic low interest paper when growth and inflation are the theme? When the economy heats up they will need cash to lend out, right? They are forced to take on more collateral to meet NAV on their MM account deposits held by people scared to death. The stock market keeps kachinging its way higher, or you might think there is trouble ahead. But anemic growth has been great for US corporations, and more lies ahead.

  33. What happens when interest rates are negative, after inflation, for decades ?
    What happens when a 15 $/hour wage won’t buy you access to an outhouse ?
    What happens when judges & teachers refuse to work ?

    We are about to find out.

    • shandy says:

      Gladly they refuse to work i say because in my opinion they fit and stew and are worthless.

  34. Micheal Engel says:

    1) RRP provide good collateral to the Repo market. $1T SOS, possibly to a starved market.
    2) Somebody might be in troubles, because SOFR was rising to 0.05,
    and Libor to 0.10, according to Wolf.
    3) The Unemployment low in the last 12 months was 5.8% in May 2021.
    4) Yield inversion, can be caused by the bond traders, or gravity with foreign entities, might be a fake signal.
    5) Dr Claudia Sahm designed a better indicator to forecast recessions
    and make them less severe.
    6) When people lose their job they spend less, default on their rent & debt.
    7) If, in the next 12 months, the unemployment rate will rise > 0.5% + 5.8%, or 6.3%, we might be in the early stages of recession.
    8) JP cancelled Dr. Claudia Sahn

  35. Ghia says:

    I wish I was smart enough to really understand this. I never studied ECON, but I’m pretty good at History. Didn’t Germany print lots and lots of paper money for some reason about 100 years ago? Maybe to make people feel wealthy when productivity was slipping? I’m fishing for an analogy, or a point of reference that an old guy can grasp.

    • Auldyin says:

      I’ll give an analogy a go.
      I think of the country as a horse ridden by the Govt.
      The bridle (high interest and budget surplus) holds it back.
      The spurs (low interest and budget deficit) make it go.
      If you’ve got a keen fit horse, you need a lot of bridle.
      If you’ve got a fat lazy horse, you need a lot of spurs.
      Just sayin’

  36. Micheal Engel says:

    9) Most bubbles don’t end in anti bubbles, in most cases.

  37. So if the Fed retires money, shrinks the monetary base, is that an anti-bubble? Dollar holders might lose confidence that their store of value is really a Fed variable. I see the readers here equally divided between followers of asset bubble dynamics and anti asset bubble counter strategies, ie cash. If the Fed destroys confidence in cash is that anti anti-asset bubble policy?

  38. MonkeyBusiness says:

    This is lifted from a Medium article by Concoda.

    “But the most convincing, interesting, also scary theory out there is that the Fed intends to create a “universal balance sheet”. Fed Chair Powell and other officials know the system is on the verge of collapse, but there’s no reset button. So to kick the can down the road, they have designed another layer that will sit on top of the financial house of cards: The ultimate bailout machine.

    As investor George Gammon reveals, reverse repo transactions allow the Federal Reserve to combine every balance sheet of every entity under its umbrella — the megabanks, the Fed itself, and other specific financial institutions—into one big ledger. They have found a way to nationalize the entire financial system, the ultimate centralized mechanism that enables the Fed to constantly bail out anyone they like without the people’s consent. “

  39. 2BFrank says:

    Monkey Business:- The Fed do already own everything, the entity responsible for and in control of printing/creating the world’s reserve currency have almost UNLIMITED power, they through their agents can own ANYTHING, let us imagine they decide to press a computer key at no cost, and credit Mr Saylor with 500,000,000 dollars, him and a few others to make it look good, and they are instructed to use it buy every single bitcoin there is and ever will be, and at the same time make an enormous profit for themselves and the Fed, all under the plunge protection arrangements set up as soon as the gold standard was “temporarily” removed, who is to stop them?.
    Do you ever wonder why the Cayman Islands is the fourth or fifth biggest US bond holder in the world?, do you now get some understanding of how the system works,.
    The fed is NOT federal it is a private bank owned by other banks, it is doubtful if it even cares about the USA and its economy or people, and if it does it is only to the extent that it allows it to continue its plunder for its own benefit, “Give me the power to print a country’s money and I care not one whit about its laws” to paraphrase Rothschild.

  40. Artem says:

    An inflationary monetary supply is a blessing. Can you imagine the capital constraints of a gold or bitcoin standard? There would definitely be a constant shortage of reserves, no matter what ratio you pick.

    It’s equally disconcerting that government and mortgage debt is used as a de-facto standard today. I don’t blame anyone for confusing debt and cash when it comes to the FED.

    • MonkeyBusiness says:

      Cheap oil has run out. You can’t print oil. And yes to transition to the Green economy, you need oil. Heck, digging oil requires oil. With the economy we have, like it or not, money will need to become constrained.

      • Artem says:

        You kinda can print oil. Just have the FED guarantee all the junk energy bonds, and voila, oil glut.

        • MonkeyBusiness says:

          They tried doing that with shale oil remember, and it led to disaster. A lot of the shale oil companies are bankrupt.

  41. Gary Yary says:

    Thanks again Wolf for your article.

    Micheal Engel and the mention of the Buffett Indicator. Great point. Made some financial moves immediately after looking at that. When factoring the GDP on the equation – the Fed is the majority of the GDP?

    Play the game. Money is a game. Roll the dice.

  42. BuffaloBob says:

    The Fed is obviously terrified of the reaction of the financial markets (stock, bond, mortgage) to any hint of tightening; so they disguise it through the repo market.

    Their role has devolved into continually goosing the markets, instead of attempting to mange growth and inflation.

  43. George W says:

    Fortunately for me…

    I studied the Great Depression so yeah, I know how this all turns out.

  44. Giorgio says:

    Is this RRP explosion because of counterparty risk problem?
    I guess the point is that Big Banks and Big Funds are feeling scared of the “All Assets Bubble” and they need some pristine collaterals to try to manage the risk. That’s why they are sucking 1T$ pristine collaterals from the system (just in the US) every day and potentially creating a Deflationary Environment!!

  45. Allan says:

    It’s a good slight of hand, because Treasury Bonds are not counted in the money supply.

  46. nickle says:

    Brother can you spare a dime?

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