I know I’m going to gloss over a lot of stuff going over this, sorry about this but I need to fit it all into four posts without giving everyone a 400 page treatise on macro-economics to read. The first stages of hyperinflation begin slowly, and as this is an exponential process, most people will not grasp the true extent of it until it is too late. I am getting increasingly worried about the amount of warning signals that are flashing red for hyperinflation- I believe the process has already begun, as I will lay out in this paper. (Money Market Funds are massive- they manage nearly $5 Trillion dollars as of the end of 2020) (These have been covered at length in other DDs, read this if you’re still confused) Then the MMF gives the Treasury back to the counterparty at the maturity date of the RRP contract (in this case, the maturity is only one day) in exchange for the payback in full of the original loan. The Financial Institution (most often a Money Market Fund (read here if you don't know what MMFs are) takes $1M of cash, and gives it as a loan to a counterparty, who coughs up $1M of Treasuries as collateral to the MMF. Reverse Repos are extremely similar to short term cash loans. There are signs that the entire banking system is straining under the weight of the massive liquidity injections from the Fed. The amount and diversity of participants is evidence that this is a systemic issue for Money Market Funds/Banks/Broker-Dealers- not just a few large SHFs needing Treasury collateral. Their shorts may have been contributing tangentially to the issue, but are not the driving reason for this record scramble for collateral. Thus, the SHFs were using banks as intermediaries in order to get these treasuries on their books on the day they needed a locate. In my first ever DD in May ( here ) I hypothesized that the reason for the sharp increase in RRPs was due to Citadel and other SHFs shorting the Treasury Market (from Atobitt’s The Everything Short)- my idea was that they were likely hitting FTDs on their shorts (since they may have shorted more bonds than exist) and needed to locate Treasuries to kick the can on the FTDs. As I am sure everyone saw, last Friday the Fed’s O/N Reverse Repo figure hit a record $1 Trillion, shattering all previous records.
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