Me And the Money Printer: Volume 2

At some point, you're going to need to understand what all this crap means. So, let's take some time to review one of the most important elements in the market today: Reverse Repo.

Dear Reader:

Imagine you have too much cash sitting around.

Sounds like a nice problem to have, right?

However, excess cash can be a headache for major financial institutions.

They need to use it productively while keeping it safe and accessible.

That’s where the Federal Reserve's Overnight Reverse Repo Facility (ON RRP) comes in.

Now, I can feel you pulling away. You’re thinking - oh man - how did I end up reading this?

Well, there’s a problem. You have to understand how this works.

Because it’s like weather forecasting, if you know when it will rain, you’ll see when you need an umbrella. The same goes for the markets.

When liquidity starts to drain due to this Fed tool… we’re always on alert for a storm.

That is very important to your money.

What Is a Reverse Repo Operation?

A reverse repo operation is when the Federal Reserve temporarily borrows money from financial institutions, giving them Treasury securities as collateral.

Here's how the repo process works:

First, a financial institutio…