The Fed’s reverse repo just hit another new all time high at $1.33 trillion (that’s trillion with a T not billion with a B, let that sink in). Since the interest rate is 0.05% annualized, the Fed pays $665.000.000 annualized to banks and funds who park their money there. Not exactly spare change, eh? And why does the Fed do that, pray tell, since it is still pumping out $120 billion per month in QE? The mind boggles.
The Fed (ie basically the taxpayer) is giving out money for free and then allows those who receive it to give it back at a guaranteed markup. Oh, but it gets better (umm… worse, actually). The way you get the Fed to give you the money in the first place, is that you put a bunch of mortgages together, create an MBS (at a mark-up, of course) and sell it to the Fed. The whole operation is, of course, chock full of fees accruing to you and, essentially, risk free. Hey, nice work if you can get it, no?
And oh, yeah, there’s so much demand for this nice little money-making machine that the Fed just doubled the amount it will accept per counterparty for the reverse repo. And the QE keeps pumping… it’s nuts!!
But that’s not my main topic today. Keep reading..
The Fed’s Reverse Repo Hits Yet Another All Time Record
The government borrowed a bunch of trillions in the past 12-18 months and stuck them into its account at the Fed, called Treasury General Account. It has now spent almost the entire cash pile, taking the TAG balance down from $1.8 trillion to a mere $200 billion - see below. The two charts are, quite obviously, reverse images of one another.
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