The Fed Just Lit the Fuse for a Liquidity Crisis

In this episode, we discuss the recent change in the reverse repo rate, and how it has drastically shifted the flow of reserves in the financial system. When a counterparty with zero risk offers a higher interest rate than T-bills, you get a tsunami of cash sucked out of the system straight into the hands of the Federal Reserve.

Key Sources
https://www.zerohedge.com/markets/powell-just-launched-2-trillion-heat-seeking-missiles-zoltan-explains-how-fed-started-next
https://fred.stlouisfed.org/
https://www.federalreserve.gov/default.htm

Chapters
0:00 Intro
0:56 Repo Market Explained
2:39 Repo Crisis Type 1
4:17 Repo Crisis Type 2
6:33 Repo vs Reverse Repo
7:32 How Long Can This Last?
8:53 Why Rate Hike is Draining Reserves
11:08 Why is the Fed Making This Mistake?
14:57 How could Markets be Affected?

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