This video is a follow on from the previous video about the Reverse Repro facility offered by the FED
If you haven’t seen that then I’d recommend you doing so before watching this one.
Let’s pick up where we left off …
Jo Brown of Heresy Financial on YouTube explains the matter fairly well, talking about the Banks liabilities and assets; the differences in interest rates in an Economy, conflicts between Monetary Policy v Fiscal Policy etc
For those of you who are interested, he released a video entitled, “the Reverse Repo Facility will be completely drained in 6 months”.
We now need to turn our attentions to interest rates because the Reverse Repo Market is inextricably linked to interest rates.
The recent round of FED rate hikes starting back in Spring 2022 has caused significant problems for the banks.
In the past, banks bought a lot of US Bonds.
When interest rates rose, the market value of the Bonds held by banks on their books became lower. This meant that the value of their assets have declined. These are known as “unrealized loses” or “paper loses”.
Their Bonds are worth less than they were when interest rates were low.
So, they’re sitting on massive unrealised loses. I’ll come back to the banks a little later on.
Let’s turn our attentions to another YouTuber … Rafi Farber of the End Game Investor. He’s an advocate of the Austrian School Economics and he says the Reverse Repo Facility has been used by the FED to keep all the Dollars that were were created in 2020 and 2021 out of the banking system.
By keeping the newly created currency out of the banking system the FED has been able to keep control of inflation … for the time being.
As an aside … They’ve therefore been able to make the claim that raising interest rates has done a good job of tackling inflation. But this is part of a disinformation campaign. Demand Destruction is not their only aim. They raised interest rates to do damage to individuals and business. So yet more.
Anyway, the Reverse Repo Facility been acting like a sponge to soak up the excess currency in the system.
I now need to say something about Money Market Funds.
Money Market Funds invest in secure, highly liquid assets, buying short term debt – such as Government issued securities and US treasuries. They weight their investment heavily in Reverse Repos.
In the video Jo Brown produced, he doesn’t talk about the interplay between Banks and Money Market Funds. Rafi however does.
In his analysis, Rafi says the Money Market Funds have been the ones taking advantage of this Facility – using up 90% of it.
In recent times, Money Market Funds have been offering better returns than banks.
So, a lot of money has been going out of bank deposit accounts and into Money Market Funds.
As Gregory Mannarino of Trader’s Choice on YouTube says, “a secret bank run” has been taking place.
So, in short, we can say that the facility has be
