{"type":"rich","version":"1.0","title":"james wrote","author_name":"james (npub1cj…60efa)","author_url":"https://yabu.me/npub1cj94enk44kn5mvrcma4sp7jnlsgnn4em7rk3dh3jt4fzyqs3m02s560efa","provider_name":"njump","provider_url":"https://yabu.me","html":"Good evening. \n\nI’ve been getting a lot of questions re: The Fed and QT. \n\nGoing to make this as simple as possible for everyone. \n\nThe Reverse Repo (RRF) is basically a slush fund where excess cash has been parked since QE 2020. \n\nThe Treasury has been using the RRF to fund its needs by issuing short term T-Bills. \n\nThe RRF is down to $500B from a peak of $2.5T. \n\nWhen the RRF is drained, the Treasury needs to find new capital. It will do this by issuing longer dated Treasuries. \n\nThis will cause the banks to use their reserves. \n\nThere are currently $3.5T in bank reserves. \n\nWhen bank reserves drop to $2.5T the Fed and Treasury get nervous. \n\nWhy? \n\nBecause they worry about another liquidity crisis like Sept 2019 when the overnight rates spiked when banks basically ran out of liquidity at the same time that the Treasury issued a pile of unexpected debt. \n\nThere are a number of reasons for this I won’t go into. \n\nAnd so, when the RRF is drained or near drained, the Fed slows QT (selling the bonds they bought in 2020-2021 to add liquidity in the markets. This is also what helped create the excess slush fund of RRF). \n\nAnd then, when the reserves hit $2.5T, QT ends. \n\nWhy? \n\nThe Fed cannot compete with the Treasury for liquidity at that point. \n\nBecause the last thing the Treasury can have is disfunction in a Treasury auction. \n\nAnd so, QT ends. \n\nAnd the next step will be?\n\nQE. \n\nMore cowbell. More. slush fund. \n\nWheee. \n\nHope this helps. Have a great night."}