Reverse Repos Are Draining Again Banking Systems Final Lifeline?

You’re just dodging the issue and you’re going on to the next thing. And I can’t really trust anything you say because you keep jumping to think, well, if nothing’s happening in a certain area that I was looking at before, well, I’m going to stop looking there until something else happens and I’m going to look at where the action is. So action has not been in the reverse repos for the past few months, hasn’t done anything since the beginning of 2024, but now they’re starting to move again. And so I will shift my attention to where the moving parts are and the moving parts appear to be once again in the reverse repos.

Where are we now? Where were you at 10 PM last night? Where am I now? Oh, where are we now? We are at 286 billion dollars in reverse repos. Remember, this is the leftover money that was printed in 20 and 20 and 2021 and banks had no place to put it started to go crazy vertical around April 2021 from zero to two point five five three trillion dollars. And now we are back down. We haven’t moved since the beginning of 2024 much where we began in February. We were a little higher in January, but in February, we’re at 550 billion and we have been skirting around 400 billion since then.

And now we are at 286 billion dollars and we’ve had a big move down this month in August. Now, what does that mean? What happens when these things zero out? Well, there’s something else that’s going on before we get to that question. And if you look at the details of these reverse repo operations, you can see here that the participating counterparties are now at 52. Now, what does that mean in context? It means that the participating counterpart is the amount of financial institutions that are eligible to deposit reverse repos at the Fed are down to 52.

Now, if I show you that chart, then you can see what’s happening in context. This is a chart that I could jigger on myself by downloading the Excel, a CSV, whatever of the amount of counterparties involved in each day of reverse repos from the those financial institutions to the Fed. So we see here the amount of counterparties, the amount of financial issues that are submitting this cash to the Fed in return for interest. They were around somewhere. Let me just move my face out of the way here. They hovered around 100 up and down most of 2022 and 2023.

They headed down as reverse repos shrunk and all of a sudden yesterday were down to 52, which was a big jump down from about 65, 66, 70, something like that. Even two days ago. So what this is telling me is that a lot of financial institutions are running out of extra cash to Park at the Fed. This cash is going to other places. And where is it going? Well, let’s see. We have a hint from Reuters. Yeah, this article from Reuters syndicated by Yahoo Finance. Feds reverse repo drops to lowest in over three years.

This is now two days also have the wrong number in the article. We’re at 286 billion. This is talking about 316 billion from yesterday. This article is by Gertrude Chavez Dreyfus, which is a multicultural last thing if I ever heard one. Another crime against society hyphenated names a lady pick a name, would you please and Dan Burns, New York Reuters. The New York Federal Reserve said it accepted two three hundred sixteen point two four six billion dollars submitted to his overnight reverse repo facility on Monday, the lowest since May 2021. This is the key quote, really.

Why is it going down now? And the reason might surprise you as it surprised me as investors sell off-risk assets. They typically move into cash, which generally gets invested in the repo market, said Scott Skirm, executive vice president for fixed income and repo at broker dealer curvature securities in New York. They are very curved with nice curvature over there, and that means you can trust them. Here’s another key paragraph, the move into repos amid a stocks meltdown as opposed to the Fed’s reverse repo facility was likely the reason for some softness and repo rates on Monday curvatures Skirm added said adding that lower repos could continue all through this week.

And so we have found out that when there are periods of market stress and there’s a big sell-off, then volume in the repo market increases while volume in the reverse repo market decreases. I didn’t know this. I wasn’t aware that this is going to happen. But now we have another reason to expect that the reverse repos are going to zero out pretty soon. What’s the other reason because bill issuance is going to increase again and seems to have already started to increase back in July when issuance net issuance for the month, meaning the amount of Treasury bills that have been issued by the Treasury minus the amount that have been retired is now 150 billion dollars as of July numbers for July and money that goes into the reverse repos would much rather go into Treasury bills if they are available.

So according to Bank of America, which has a number of about 700 billion dollars in net bill issuance to be issued by the end of the year, we should be out of reverse repos in another two to three months if this pace continues in Bank of America is correct. Now what happens once the reverse repos finally do zero out? Well, we have a hint in this little chart. We have three colors here. Money supply falls as reverse repos stabilize red money supply stabilizes as reverse repos fall and the blue money supply falls as reverse repos stabilize again.

You can see here in the black rectangle that I drew the blue jiggly line is the reverse repos the amount that’s in the facility and the red line is money supply. So we see as reverse repos stabilize over here from about let’s say June 2022 to just before July 2020. These are for about a year money supply was going down fast when reverse repos stabilized and we see when reverse repos went down fast from about 21 trillion just a little bit less or 20 and a half trillion to 400 billion.

So about 1.5 1.6 trillion dollars they fell and money supply stabilized because this new money was being taken from the reverse repos putting back into the money supply. The fact that money supply did not grow faster was pretty surprising which means they’re pretty intense deflationary forces on the money supply and now we are seeing money supply peeked out over here at around March. This was April 2024 on tax day and started to decline again and we are in decline again. Why because reverse repos have stabilized and no new money has been coming in from reverse repos into the money supply.

So therefore money supply has started to fall again. Now what happens when reverse repos finally zero out in about two to three months according to Bank of America not explicitly according to Bank of America but by their estimates of the Treasury bill net supply in the next two or three months. It should be in the next two or three months. Well, if it’s the reverse repo money that is buying the Treasury bills at auction then when there are no dollars in the reverse repo facility at all and there’s suddenly a Treasury bill auction that money that funds that Treasury bill auction is going to have to come from reserves bank reserves.

These are bank reserves. I’ve shown these before my theory here is that once we get to around 3 trillion in reserves. We are going to experience the next financial crisis exactly what iteration of a financial crisis. I do not know what exactly is going to be affected, but we will know when it hits and it is coming. So reserves have already been falling since April. Yeah, also post-tax day of 2024 this year and once the reverse repos are dead are done then this is what is going to have to fund the Treasury bill auctions and once they start funding the Treasury bill auctions, you’re going to see money going from here from bank reserves into the Treasury’s account at the Federal Reserve where they will use it to spend money on a whole bunch of different things including all the crap that you know about tell my thesis isn’t that about two or three months once the reverse repos dry up, we’re going to see a big meltdown in bank reserve numbers and from there we are going to be forced into the next financial crisis which will spur the next printing round sometime in let’s say September October maybe November, but it’s still going to be this year and what’s another hint that I have that the next crisis is just around the corner this chart from Fred.

This is the 10 year minus two year yield curve spread the difference between 10 year yields and two year yields. Now we’ve seen a lot of commentary on this chart false commentary wrong commentary that this indicator is broken because usually when it goes below zero, there is a recession, but it’s not even true. It only leads to recession once the yield curve uninverts and goes back above zero. You see here the recession of June 1990 or July 1990 rather started after the yield curve uninverted and became a positive point for five or 45 basis points meaning the 10 year yield was 45 basis points above the two year yield and that’s when the recession started after a trip below zero over here.

Same thing in 2000 we had a below zero yield curve spread meaning an inverted yield curve and then an uninverted it uninverted in December 2000 and by March 2001 three months later. We were in the 2001 recession after the dot-com bubble burst and all that other stuff and here we had an inverted yield curve until the point of June 2007 where we got back to 16 basis points and from there it uninverted fully and we were in a recession by January 2008 six months later. Now we’re about to cross the threshold here again.

We’re at four points below zero four basis points below zero point zero four percent means we could cross into positive territory any day doesn’t mean we’re going to we’re not going to cross back into negative briefly as happened here once has happened here also you were negative we cross back into positive here back into negative and there’s some zigzag in this that is possible when we’re trying to uninvert and go back above zero. I’m not saying that can happen here but since we’ve been negative since June 2022 right that for over a year now which is the longest we have a negative yield curve ever.

I’m not expecting that once we break back above zero that we’re going to go back below it. I don’t think that’s going to happen. I could be wrong. We’ll see if this is a portent for the future. We have a few months before this fully uninverts and we’re back into the final recession of this monetary system is what I believe. And so how do you prepare for this? Well besides stacking physical gold and silver is videos brought to you by monetary metals. If you go to monetary dash metal slash Rafi link in the description below you will find this landing page where it says earn interest on gold paid in gold.

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Let’s see what happens to the bank reserves once they zero out and let’s see where the next financial crisis is going to come from but let’s not see how the Fed is going to respond because we all know it’s just going to be inflation and this time I think it will be the hyper variety buckle up back there. We’re going into hyperactive. This is Rafa the endgame investor and I’ll see you guys soon. You can become my patron on Patreon at the link in the description below where the next thing we’re going to discuss is torture.

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