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Author Topic: Fed reverse repurchase transactions?  (Read 1227 times)

NuclearDruid

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Fed reverse repurchase transactions?
« on: May 23, 2011, 08:17:14 pm »

Reverse Repo Counterparties List

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Effective May 23, 2011, the New York Fed has accepted the following money market funds as reverse repurchase transaction counterparties. This is in addition to the primary dealers and previously approved reverse repurchase transaction counterparties.

Anyone know what a Fed reverse repo is and why the usual banksters are on the list?

ND
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ZooT_aLLures

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Re: Fed reverse repurchase transactions?
« Reply #1 on: May 23, 2011, 08:33:10 pm »

Looks to me like they're raiding funds to finance the purchase of T-bills
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Even some cowboy and indian outlaws in the 1800's eventually stopped sleeping under buffalo skins, and came to town to entertain paying customers. For some I imagine the bruising of their ego never healed.

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Silver

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Re: Fed reverse repurchase transactions?
« Reply #2 on: May 24, 2011, 04:17:30 am »

A fed reverse repurchase agreement is when the fed sells U.S. Treasury securities, U.S. agency securities, or mortgage-backed securities to a primary dealer who agrees to sell them back, typically within one to seven days.  It's a fundamental tool for controlling interest rates.  A reverse repo drains cash reserves from the banking system, then adds them back a few days later. 

The usual banksters are on the list because that is what they do - work with the fed to try and hold the market interest rate to an artificially low value.  A straight repo adds cash to the system, which tends to push rates down; a reverse repo pulls cash out of the system, which tends to raise rates.

There's a tidy, essentially risk-free profit involved.  Not for you and me, just for the banksters.

Peace,

Silver
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mutti

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Re: Fed reverse repurchase transactions?
« Reply #3 on: May 24, 2011, 07:20:54 am »

Thanks Silver. I asked ND to start this thread while I frantically made an emergency run to the Vet....

Here is the article that started the question :

A Sign of Desperation at the Fed



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There are now $1.5 trillion in excess reserves just sitting there that could explode and hit the economy at anytime and cause huge price inflation. There has never, ever, before Bernanke started paying interest on  reserves so much of an overhang in excess reserves. In the month before the Fed started paying interest on excess reserves, September 2008, excess reserves stood at only $27 billion.

Here's the difference between then and now:

THEN:      27,000,000,000

NOW:   1,500,000,000,000

Here's a graph of the situation:



And of course yesterdays New York Fed statement that Today this would begin:
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As noted in the October 19, 2009, Statement Regarding Reverse Repurchase Agreements, the Federal Reserve Bank of New York has been working internally and with market participants on operational aspects of triparty reverse repurchase agreements to ensure that this tool will be ready if the Federal Open Market Committee decides it should be used. Beginning tomorrow, the New York Fed intends to conduct another series of small-scale, real-value reverse repurchase transactions using all eligible collateral types. The first set of operations will be conducted using only the expanded repo counterparties announced on January 31, 2011. The second set of operations will be open to all eligible reverse repo counterparties.


Thanks



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ďRightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others. I do not add 'within the limits of the law' because law is often but the tyrant's will, and always so when it violates the rights of the individual.Ē  Jefferson

"The universe never did make sense; I suspect it was built on government contract." Heinlein

Silver

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Re: Fed reverse repurchase transactions?
« Reply #4 on: May 24, 2011, 09:15:02 am »

You're welcome mutti, and I hope the vet trip went as well as possible.

I don't trust Robert Wenzel.  He writes about things he doesn't know about, and that list is very long.

It's true there are huge excess reserves at the fed.  I started writing about that here, over two years ago, in the thread This is the way the world ends.  There were huge reserves in late 2008 as a direct result of a gargantuan binge of money creation by the fed.

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The FED increased the monetary base by about $1.3 trillion in October 2008. This was the largest one-month increase in the history of the FED. Nothing else comes close. The FED was in panic mode. To double the monetary base in one month was hyperinflation.

But nothing much happened to the total money supply. That was because commercial bankers offset the purchase by depositing most of it into their accounts for excess reserves at the FED. The normal money multiplier effect of fractional reserve banking did not go into effect. The new money was mostly sterilized by the commercial banks.

The FED wanted this to happen. This was why, on October 6, it inaugurated a new policy: paying banks interest on excess reserves.

This policy had been scheduled to go into effect in 2011. It was speeded up because of the emergency.
-Gary North

Wenzel points at a pile of fuel that has been sitting there for over two years and warns of the danger, but he can't tell that his own pants are already on fire.  QE2, the present and ongoing program of creating huge sums of new money, is hugely inflationary.  Filled your gas tank lately?  Bought groceries?  We're told that inflation is low, but anyone with a wallet that doesn't refill itself from the fed spigot knows better.

Last November, I wrote:

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$75 billion a month. For the next 8 months.  This is how the fed proposes to help us.

They are creating money from nothing, using it to by Treasuries, then the fedgov uses that money to buy goods and services.  And to kill people.

75 billion a month is
2.5 billion a day is
100 million an hour is
1.75 million per second.

If they bothered to print it, they would need to print 1 million pieces of green paper per hour, each stamped "100."  The presses would have to run 24/7, 365 days a year, no breaks.

This is extraordinarily inflationary.  The huge increase in the money supply in 2008 was and still is largely confined to "excess reserves" held by banks at the fed. It has not entered the economy. The new money being created today is spent into the economy right away, bidding up the price of everything.

Helicopter Ben is doing exactly what he promised, but it's easier and cheaper to give the money to a government that is spending $3 for every $1 it gets in taxes than it is to hire a fleet of helicopters.  Helicopters needs trained pilots and fuel.  Government bureaucrats need neither training nor supervision, they can waste money better than anyone.

As it turns out, they lied.  They are actually creating $110 billion a month.

QE2 is supposed to end in June.  I have my doubts.  If they really do stop creating nearly $2.5 million every second, the stock markets will pop like the over-inflated balloons that they are.  I'm predicting QE3, then QE4, and so on, until they call it something else, and finally destroy the dollar entirely.

Reverse repos are also old news.  The fed lists (at least some) of their repos and reverse repos here.  Scroll to the bottom; I find a 1-day reverse repo offer for $84 billion, with $25 billion accepted.  That was December 16, 2008.  Where was Wenzel then?  He was blogging about a former Playboy Bunny.

The Fed is desperate, but not for the reasons Wenzel writes about.  They are desperate because the economy is dead, and sending huge jolts of new money into it has done nothing but make the corpse twitch a little.  They are desperate because Ron Paul is now Chair of the Domestic Monetary Policy Subcommittee of the House Financial Services Committee, and he is holding hearings and asking questions.  They are desperate because Paul and others recently called their bluff and suggested that the Fed sell the gold that Roosevelt stole.  The fed sneers at gold and calls it a barbarous relic, but they won't sell it because they are evil, not stupid.

They are desperate because the end is in sight, and it isn't pretty.  The easy life of federal bureaucrats is about to get much tougher.

Wenzel is a distraction, pointing at old news and reporting it as if it happened yesterday.  He needs a clue.  I don't waste my time on him.

Peace,

Silver
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mutti

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Re: Fed reverse repurchase transactions?
« Reply #5 on: May 24, 2011, 09:32:10 am »

Got it and much appreciated.

mutti

(OT: Vet trip not so good. "Goat Polio" - Thiamine deficiency in 27 day old doeling not responding to treatment. First case ever, surely hope the last. Makes me wonder why I do this.)
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ďRightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others. I do not add 'within the limits of the law' because law is often but the tyrant's will, and always so when it violates the rights of the individual.Ē  Jefferson

"The universe never did make sense; I suspect it was built on government contract." Heinlein
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