Repo Market Stress: The standing repo facility usage and triparty repo rates rising above target indicate stress and the Fed's struggle to cap short-term rates.
Counterparty Risk: The core issue is trust, with lenders demanding higher rates from riskier borrowers, showing this is not about bank reserves but counterparty risk.
Quantitative Easing: The guest expects QE to start imminently as a signaling tool, though he argues it will not solve the underlying plumbing issues.
Liquidity Tightening: Money markets show tightening liquidity reminiscent of 2019 conditions, with rising shares of transactions above IOER and end-of-period spikes.
Company Signals: Corporate headlines like job cuts or weak demand from Verizon (VZ), Amazon (AMZN), Meta (META), Chipotle (CMG), and CarMax (KMX) are cited as macro stress indicators, not stock pitches.
Fed Control Limits: Stigma around the standing repo facility undermines the Fed’s rate control tools, as banks prefer private repo even at higher rates.
Risk Monitoring: Key watch items include triparty repo averages vs. Fed facility rates, usage trends in SRF, and broader liquidity indicators for signs of escalating stress.
Transcript
Hello fellow Rebel Capitals. Hope you are well. So we got big news coming out of the Fed and I think this is just them showing their cards. What I mean by that is I think QE is inevitable. So they were doing QT, they stopped QT, but now I think it's time to uh hit the cowbell once again. Now do I think this will make a difference? No, I don't. No, I don't. And we're going to get into that right now. So, let's check it out. Uh, FT right here reporting. Let me try to zoom in for you guys so you can see this. New York Fed convened meeting with Wall Street firms over key lending facilities. So, what they're talking about is the standing repo facility at the Fed. So for I'm sure a lot of you have heard about the repo market. The repo market is usually doesn't involve the Fed. This is a completely separate deal. Now they're repo transactions. But the big question here is why are these counterparties using the Fed's standing repo facility? So, is it just because there aren't enough bank reserves in the system or is it because counterparty risk is increasing? See these and and you never hear about well maybe just maybe rates are increasing in repo and we'll go over that the the main repo market not the feds because the Fed doesn't increase their rates which is why you see the usage tick up but we'll get into that in a moment. Uh so I think the main things that I want to discuss here are why the Fed would do QE, what this really tells us about the monetary system, the financial plumbing, and then what the results of the QE will likely be or not be. Okay, so let's go down here. Uh, New York Fed Reserve President John Williams convened a meeting with Wall Street dealers this week over a key short-term lending facility. We talked about that. That's the standing repo facility that hastily arranged the meeting. That's never good. Williams solicited feedback from primary dealers, mostly banks, which underwrite the government's debt, on the use of Fed's standing repo facility, which central bank officials described as crucial release valve to help them keep short-term borrowing costs within their target range. Okay, so let's think this through. Let's say a counterparty goes into the the main repo market and they offer up collateral and the interest rate they have to pay is 4.5%. And let's keep in mind interest on reserves right now or you know close to the Fed funds rate is let's just say 3.75 just for the sake of this example. So the 4.5% would be way above way above the Fed funds rate. So then they go over to the standing repo facility and they say, "Hey, standing repo facility at the Fed, what are you charging?" And they say, "Well, we're just charging a flat 4%." So the counterparty has to make a decision. Do they want to pay the 4.5% in the normal repo market or do they want to pay 4%. Now, you may say, "Well, George, well, this is obvious. They're going to go ahead and take the 4%." Not so obvious because the standing repo facility, which you'll see in this article, has really turned into the discount window where there's a stigma involved and rightfully so because if you go to and use the standing repo facility, by definition, you've got a problem. By definition, you're going to the standing repo facility because you don't have any other options. Your only other option would be to go into the normal repo market where the interest rate is just way too high for you to pay. But why would the interest rate be way too high for you to pay? Because you are a risk. You are a much bigger risk than all the other counterparties in repo. So the fact that you see this facility being used is the real problem. That's the real problem. And I can assure you that's why Williams is going to the primary dealers not to sit there and discuss how he could make some tweaks that might improve the standing repo facility, but ask why the hell there's counterparties using it to begin with. Because that in and of itself is a huge red flag. So they say this I guess this is a quote from Williams. He says that this facility ensures uh or this meeting is uh he wants feedback that ensures it remains effective for rate control. Right? So what happens here? The idea behind this is if the Fed wants to put a ceiling on interest rates in these uh money markets, then what they're going to do is they're going to come up with the discount window, which nobody uses, and then they come up with a standing repo facility, and they say, "Okay, if they want the ceiling at 4%, well, they're going to go ahead and charge 4% to these counterparties." And theoretically, that should put a limit on the interest rates in these money markets. That should put a ceiling there because no one would borrow at 5% if they could just borrow from the Fed at four. That's basically what's happening here. And it's basically the mirror image or the opposite of reverse repo. So reverse repo theoretically is how they put a floor on interest rates and standing repo or discount window is how they put a ceiling on interest rates. try to put a floor and try to put a ceiling because as we know very often interest rates will go lower than reverse repo such as in four-week tea bills and as we know [laughter] some there's a lot of transactions that are happening that are above and beyond the Fed's u reverse repo and we're going to get into that here in a moment. So a closely tracked me. So the bottom line here is Williams has to go to the primary dealer banks ask what's happening because he doesn't know and then he has to figure out a way that he can sell these counterparties on using the standing repo facility. Why would he have to sell these banks on doing it? Because his pitch to them is like look guys there's this stigma to it. We can't have this stigma because we, the Fed, have to have control over these interest rates. And if there's a stigma to it, then we're not gonna have any control because the markets would prefer to access repo funds from the private banks, the real repo market, and they're they're going to be willing to pay a higher rate. And therefore, we the Fed don't have control over that rate. So the pitch to these banks is like, look guys, help me out here. If all of you guys use the standing repo facility at the same time, then it'll take the stigma away. Or if you guys just use it periodically, like every Monday, all of you guys come in and just even if you don't have to, just h borrow a couple hundred million or something like that. And then that's going to take this stigma, or at least he thinks that's going to take the stigma away from it. And I'm sure these primary dealer banks are like, "Yeah, I don't think so." because they're not going to take that risk with their reputation. Would you? I wouldn't. Because then if you get this, let's say, stink on you, then you go back into the normal repo market, which they would far prefer to deal with. Uh if they didn't prefer to deal with that, then they'd be using this the standing repo facility a lot more and the Fed wouldn't have to beg them to do it. But then when you go back into the real repo market, people like, "H, I don't know, buddy. I just saw last week you went to the standing repo facility. So, I was going to charge you 4.1, but now I'm going to charge you 4.2 or I'm going to demand that you have better collateral or I'm going to demand that you have more collateral." And these counterpart, they just don't want to take that risk. So that's kind of in in my view that's the back and forth that's really happening here. A closely tracked measure of short-term borrowing costs known as triparty repo. So this is the real repo market, not the Fed's standing repo facility jumped well above a rate set by the Fed late last month. So tripart the real repo rates went a lot higher than this ceiling the Fed was trying to create. Moving on, triparty repo rates have again picked up this week, rising almost 0.1 percentage points above Fed's rate on reserve balances. I'm assume that's I though they remain lower than at the end of October. Well, they should be because the end of the month they should spike up due to just uh they they almost every end of month or end of quarter they kind of you get a bit of a spike there. The share of repo transactions taking place at rates above the interest rate on reserve balances has reached levels last seen in late 2018 and 2019. Uh that ain't good because most of you know what happened in 2019, late 2019. They completely lost control over it and repo rates spiked to 10%. approximately. And check out this chart. So, a lot of people when this first started happening, they're like, "Oh, this is a nothing burger. This is no big deal. It's just end of quarter. It's just end of the month." You know, because a little tightness here and there. No big deal. But then you start to see this trend and you see what the trend has done since Q3 of this year. It's gone, let's just say, in the wrong direction to put it mildly. And I'm sure you guys have been hearing in the in the news the talking heads reporting that money's getting tight. Money's getting tight. There's a lack of liquidity. A lack of liquidity. They talk about sofur. They talk about repo. Lack of liquidity. This is one of the main things that they're talking about. And it's true. There is a lack of liquidity. But it ain't because there's not enough bank reserves. The lack of liquidity in my view is because you have increasing counterparty risk. The New York Fed president said earlier earlier this week he he viewed the recent use of the facility as effective. Okay, [laughter] that's funny. If it was that effective, why are you going on on hand and knee to these primary dealer banks and begging them to use it so there's no longer this stigma, he adding that he fully expected it would continue to be actively used. That's not good. That's not good. So what he's saying there to the media because he can't admit the truth is that he expects it to be used because he went and begged all the primary dealer uh banks to use it to take the stigma off it. So he expects they will obey, but in reality they're not going to obey. And if you do see continued use, that ain't a good thing. That's a bad thing because of what we talked about at the beginning of this video. So, but use of the facility has been limited in recent weeks. Some groups have borrowed from the Fed, but not in high enough numbers to fully stabilize repo rates, which again [laughter] tells you that there's too much stigma there. there. What this is saying is that counterparties are literally choosing to pay a higher rate in triparty repo than they could get at the Fed for the exact same transaction. Lenders are often loathed to use the facility. And here you go, because a lot of people accuse me of kind of making things up. Oh, George, you're just you're just fear-mongering. Oh, that's not the way it really works. I listen to CNBC and they don't tell me about the counterparty risk going up. They're not telling me that there's this stigma at the Fed. Oh, you just don't You're just making up fake news to get engagement. You know, that's what people, well, let's just call them knuckle draggers. That's what they usually accuse me of here. But what they don't understand is I'm not making this stuff up. I I'm literally taking it from the source and saying here it is. It's just the uh it's the inconvenient truth that people don't like to talk about because what that means is that the Fed isn't at the center of the monetary solar system and their entire worldview blows up. But right here, if you don't believe me, let's straight from the FT. Lenders are often loathed to use the facility, fearing that it could signal to the market that their institutions are under pressure even though names of borrowers are are only made public 2 years after they tap the facility. So, think about that. Think about how bad the stigma actually is. If you're you'd much rather pay a higher rate and try party then even risk this coming out two years later. That tells you how big of a red flag it is that counterparties are using it right now and the usage is increasing. They say repo is all about trust. Now this is not from George Gammon. This is from Thomas Simons, chief US economist at Jeffre. Notice he said repo is all about trust. He did not say repo is all about the amount of bank reserves. He did not say repo is all about QT. He did not say repo is all about QE. He said repo is all about trust. In other words, repo is all about counterparty risk. So if you see the repo rates going up, it's not because the Fed's been doing QT. It's because the system has cracks, cockroaches, and those cockroaches are coming to the surface. By the way, I just pulled up this article just to give you an example of what I'm referring to. Verizon uh at all these popups here. Verizon to cut about 15,000 jobs. I won't go into the story, but I just wanted to bring that to your attention. So, you've got Verizon cutting all these jobs. You've got Amazon cutting jobs. You've got uh Facebook or Meta Beta, whatever. They're cutting jobs. You've got Chipotle coming out and saying they're saying a very weak consumer. You've got CarMax just completely collapsing and you have all of these cockroaches coming out. Okay. Well, do you think that these lenders in triparty repo don't look at this? Do do you think they're unaware of these things happening of in the economy? Do you think they're unaware of ofricolor or first brands or these hedge funds that are blowing up under the control of UBS that are exactly like what happened in 2007? Of course they're aware of this. Of course. So that would make them very risk averse when they're lending in repo. So if they do see a counterparty that's eh a little suspicious, what are they going to do? they're going to charge them a much higher rate. A much higher rate. And another kind of uh proof. It's just it's absolute proof that it's not about bank reserves. It's about trust. It's about risk. Like Thomas Simons says is the fact that in triparty repo, it's an aggregate average. This is what most people miss. So if I pulled up a chart of of repo rate, the real repo rates, not the Fed, but the real repo rates right now, you would just get one number. So let's just say that the number is 4%. That that's not the actual, but let's just say that it's 4% for the sake of the example. What people don't realize is that's an average of all the transactions for the day. So you could have some transactions at 3.5, you could have some at 4.5. I don't know. So if you had three transactions, one at 4.5, one at four, and one at 3.5, the average would be 4%. Then people just see the 4% and assume that every single counterparty is receiving that rate. Absolutely not. Absolutely not. And the fact that there are different rates tells you [laughter] that that their rationale depends on trust, that their rationale depends on counterparty risk and it doesn't necessarily depend on the amount of bank reserves in the system. Because if it didn't depend on trust, if it didn't depend on counterparty risk, then you wouldn't have multiple repo rates, would you? You just have one repo rate like the Fed. But the reason the Fed can offer one repo rate to everyone, even the guy that would have been charged 4.5%. Is because they can have negative equity. They don't care about a P&L. They can't go bust. Their balance sheet doesn't matter. Where a real bank, a real counterparty, then it does obviously matter. They have to get paid back. They have a P&L. They have a balance sheet. They can't have negative equity and so they have to be very careful about who they're lending to and they have to actually consider the risk where the Fed doesn't. Here's another I I should have highlighted this as well. If any borrower gets the reputation and this is a quote here guys I'm reading this. If any borrower gets the reputation of being riskier by using the Fed standing repo facility, it creates this perverse incentive for all the lenders to pull back at once, even if it isn't deserved. Once you get the stink on you, it's hard to recover. And this is again Thomas Simons, not George Gammon. And he's not some schmuck on YouTube. He is chief US economist at Jeffre. So what's the Fed gonna do? Well, they have to keep this illusion that they actually matter. They have to keep up this illusion like the Wizard of Oz that they're at the center of the monetary solar system. So they can't do nothing even though they know that they're irrelevant. So what are they going to do? They have to send a message. They have to send a signal. They're going to come out here and do quantitative easing. That's why uh my base case is that they start quantitative easing. I wouldn't be surprised if they start it before years end. In fact, I would be surprised if they didn't start it uh before years end. And it's it why? because they have to be seen as though they're doing something. Even though what they are doing has nothing to do with the problem that we have. And the problem that we have is not a lack of bank reserves. The problem that we have, if you just think about this for five or 10 minutes or just listen to Thomas, the problem that we have is counterparty risk increasing. And that's why you're seeing what you're seeing in this chart. And that's why you're seeing a lack of liquidity in these money markets. All right, guys. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market, capitalism, and we'll see you in the next video.
Fed Starting QE SOON!! (Here's Why)
Summary
Transcript
Hello fellow Rebel Capitals. Hope you are well. So we got big news coming out of the Fed and I think this is just them showing their cards. What I mean by that is I think QE is inevitable. So they were doing QT, they stopped QT, but now I think it's time to uh hit the cowbell once again. Now do I think this will make a difference? No, I don't. No, I don't. And we're going to get into that right now. So, let's check it out. Uh, FT right here reporting. Let me try to zoom in for you guys so you can see this. New York Fed convened meeting with Wall Street firms over key lending facilities. So, what they're talking about is the standing repo facility at the Fed. So for I'm sure a lot of you have heard about the repo market. The repo market is usually doesn't involve the Fed. This is a completely separate deal. Now they're repo transactions. But the big question here is why are these counterparties using the Fed's standing repo facility? So, is it just because there aren't enough bank reserves in the system or is it because counterparty risk is increasing? See these and and you never hear about well maybe just maybe rates are increasing in repo and we'll go over that the the main repo market not the feds because the Fed doesn't increase their rates which is why you see the usage tick up but we'll get into that in a moment. Uh so I think the main things that I want to discuss here are why the Fed would do QE, what this really tells us about the monetary system, the financial plumbing, and then what the results of the QE will likely be or not be. Okay, so let's go down here. Uh, New York Fed Reserve President John Williams convened a meeting with Wall Street dealers this week over a key short-term lending facility. We talked about that. That's the standing repo facility that hastily arranged the meeting. That's never good. Williams solicited feedback from primary dealers, mostly banks, which underwrite the government's debt, on the use of Fed's standing repo facility, which central bank officials described as crucial release valve to help them keep short-term borrowing costs within their target range. Okay, so let's think this through. Let's say a counterparty goes into the the main repo market and they offer up collateral and the interest rate they have to pay is 4.5%. And let's keep in mind interest on reserves right now or you know close to the Fed funds rate is let's just say 3.75 just for the sake of this example. So the 4.5% would be way above way above the Fed funds rate. So then they go over to the standing repo facility and they say, "Hey, standing repo facility at the Fed, what are you charging?" And they say, "Well, we're just charging a flat 4%." So the counterparty has to make a decision. Do they want to pay the 4.5% in the normal repo market or do they want to pay 4%. Now, you may say, "Well, George, well, this is obvious. They're going to go ahead and take the 4%." Not so obvious because the standing repo facility, which you'll see in this article, has really turned into the discount window where there's a stigma involved and rightfully so because if you go to and use the standing repo facility, by definition, you've got a problem. By definition, you're going to the standing repo facility because you don't have any other options. Your only other option would be to go into the normal repo market where the interest rate is just way too high for you to pay. But why would the interest rate be way too high for you to pay? Because you are a risk. You are a much bigger risk than all the other counterparties in repo. So the fact that you see this facility being used is the real problem. That's the real problem. And I can assure you that's why Williams is going to the primary dealers not to sit there and discuss how he could make some tweaks that might improve the standing repo facility, but ask why the hell there's counterparties using it to begin with. Because that in and of itself is a huge red flag. So they say this I guess this is a quote from Williams. He says that this facility ensures uh or this meeting is uh he wants feedback that ensures it remains effective for rate control. Right? So what happens here? The idea behind this is if the Fed wants to put a ceiling on interest rates in these uh money markets, then what they're going to do is they're going to come up with the discount window, which nobody uses, and then they come up with a standing repo facility, and they say, "Okay, if they want the ceiling at 4%, well, they're going to go ahead and charge 4% to these counterparties." And theoretically, that should put a limit on the interest rates in these money markets. That should put a ceiling there because no one would borrow at 5% if they could just borrow from the Fed at four. That's basically what's happening here. And it's basically the mirror image or the opposite of reverse repo. So reverse repo theoretically is how they put a floor on interest rates and standing repo or discount window is how they put a ceiling on interest rates. try to put a floor and try to put a ceiling because as we know very often interest rates will go lower than reverse repo such as in four-week tea bills and as we know [laughter] some there's a lot of transactions that are happening that are above and beyond the Fed's u reverse repo and we're going to get into that here in a moment. So a closely tracked me. So the bottom line here is Williams has to go to the primary dealer banks ask what's happening because he doesn't know and then he has to figure out a way that he can sell these counterparties on using the standing repo facility. Why would he have to sell these banks on doing it? Because his pitch to them is like look guys there's this stigma to it. We can't have this stigma because we, the Fed, have to have control over these interest rates. And if there's a stigma to it, then we're not gonna have any control because the markets would prefer to access repo funds from the private banks, the real repo market, and they're they're going to be willing to pay a higher rate. And therefore, we the Fed don't have control over that rate. So the pitch to these banks is like, look guys, help me out here. If all of you guys use the standing repo facility at the same time, then it'll take the stigma away. Or if you guys just use it periodically, like every Monday, all of you guys come in and just even if you don't have to, just h borrow a couple hundred million or something like that. And then that's going to take this stigma, or at least he thinks that's going to take the stigma away from it. And I'm sure these primary dealer banks are like, "Yeah, I don't think so." because they're not going to take that risk with their reputation. Would you? I wouldn't. Because then if you get this, let's say, stink on you, then you go back into the normal repo market, which they would far prefer to deal with. Uh if they didn't prefer to deal with that, then they'd be using this the standing repo facility a lot more and the Fed wouldn't have to beg them to do it. But then when you go back into the real repo market, people like, "H, I don't know, buddy. I just saw last week you went to the standing repo facility. So, I was going to charge you 4.1, but now I'm going to charge you 4.2 or I'm going to demand that you have better collateral or I'm going to demand that you have more collateral." And these counterpart, they just don't want to take that risk. So that's kind of in in my view that's the back and forth that's really happening here. A closely tracked measure of short-term borrowing costs known as triparty repo. So this is the real repo market, not the Fed's standing repo facility jumped well above a rate set by the Fed late last month. So tripart the real repo rates went a lot higher than this ceiling the Fed was trying to create. Moving on, triparty repo rates have again picked up this week, rising almost 0.1 percentage points above Fed's rate on reserve balances. I'm assume that's I though they remain lower than at the end of October. Well, they should be because the end of the month they should spike up due to just uh they they almost every end of month or end of quarter they kind of you get a bit of a spike there. The share of repo transactions taking place at rates above the interest rate on reserve balances has reached levels last seen in late 2018 and 2019. Uh that ain't good because most of you know what happened in 2019, late 2019. They completely lost control over it and repo rates spiked to 10%. approximately. And check out this chart. So, a lot of people when this first started happening, they're like, "Oh, this is a nothing burger. This is no big deal. It's just end of quarter. It's just end of the month." You know, because a little tightness here and there. No big deal. But then you start to see this trend and you see what the trend has done since Q3 of this year. It's gone, let's just say, in the wrong direction to put it mildly. And I'm sure you guys have been hearing in the in the news the talking heads reporting that money's getting tight. Money's getting tight. There's a lack of liquidity. A lack of liquidity. They talk about sofur. They talk about repo. Lack of liquidity. This is one of the main things that they're talking about. And it's true. There is a lack of liquidity. But it ain't because there's not enough bank reserves. The lack of liquidity in my view is because you have increasing counterparty risk. The New York Fed president said earlier earlier this week he he viewed the recent use of the facility as effective. Okay, [laughter] that's funny. If it was that effective, why are you going on on hand and knee to these primary dealer banks and begging them to use it so there's no longer this stigma, he adding that he fully expected it would continue to be actively used. That's not good. That's not good. So what he's saying there to the media because he can't admit the truth is that he expects it to be used because he went and begged all the primary dealer uh banks to use it to take the stigma off it. So he expects they will obey, but in reality they're not going to obey. And if you do see continued use, that ain't a good thing. That's a bad thing because of what we talked about at the beginning of this video. So, but use of the facility has been limited in recent weeks. Some groups have borrowed from the Fed, but not in high enough numbers to fully stabilize repo rates, which again [laughter] tells you that there's too much stigma there. there. What this is saying is that counterparties are literally choosing to pay a higher rate in triparty repo than they could get at the Fed for the exact same transaction. Lenders are often loathed to use the facility. And here you go, because a lot of people accuse me of kind of making things up. Oh, George, you're just you're just fear-mongering. Oh, that's not the way it really works. I listen to CNBC and they don't tell me about the counterparty risk going up. They're not telling me that there's this stigma at the Fed. Oh, you just don't You're just making up fake news to get engagement. You know, that's what people, well, let's just call them knuckle draggers. That's what they usually accuse me of here. But what they don't understand is I'm not making this stuff up. I I'm literally taking it from the source and saying here it is. It's just the uh it's the inconvenient truth that people don't like to talk about because what that means is that the Fed isn't at the center of the monetary solar system and their entire worldview blows up. But right here, if you don't believe me, let's straight from the FT. Lenders are often loathed to use the facility, fearing that it could signal to the market that their institutions are under pressure even though names of borrowers are are only made public 2 years after they tap the facility. So, think about that. Think about how bad the stigma actually is. If you're you'd much rather pay a higher rate and try party then even risk this coming out two years later. That tells you how big of a red flag it is that counterparties are using it right now and the usage is increasing. They say repo is all about trust. Now this is not from George Gammon. This is from Thomas Simons, chief US economist at Jeffre. Notice he said repo is all about trust. He did not say repo is all about the amount of bank reserves. He did not say repo is all about QT. He did not say repo is all about QE. He said repo is all about trust. In other words, repo is all about counterparty risk. So if you see the repo rates going up, it's not because the Fed's been doing QT. It's because the system has cracks, cockroaches, and those cockroaches are coming to the surface. By the way, I just pulled up this article just to give you an example of what I'm referring to. Verizon uh at all these popups here. Verizon to cut about 15,000 jobs. I won't go into the story, but I just wanted to bring that to your attention. So, you've got Verizon cutting all these jobs. You've got Amazon cutting jobs. You've got uh Facebook or Meta Beta, whatever. They're cutting jobs. You've got Chipotle coming out and saying they're saying a very weak consumer. You've got CarMax just completely collapsing and you have all of these cockroaches coming out. Okay. Well, do you think that these lenders in triparty repo don't look at this? Do do you think they're unaware of these things happening of in the economy? Do you think they're unaware of ofricolor or first brands or these hedge funds that are blowing up under the control of UBS that are exactly like what happened in 2007? Of course they're aware of this. Of course. So that would make them very risk averse when they're lending in repo. So if they do see a counterparty that's eh a little suspicious, what are they going to do? they're going to charge them a much higher rate. A much higher rate. And another kind of uh proof. It's just it's absolute proof that it's not about bank reserves. It's about trust. It's about risk. Like Thomas Simons says is the fact that in triparty repo, it's an aggregate average. This is what most people miss. So if I pulled up a chart of of repo rate, the real repo rates, not the Fed, but the real repo rates right now, you would just get one number. So let's just say that the number is 4%. That that's not the actual, but let's just say that it's 4% for the sake of the example. What people don't realize is that's an average of all the transactions for the day. So you could have some transactions at 3.5, you could have some at 4.5. I don't know. So if you had three transactions, one at 4.5, one at four, and one at 3.5, the average would be 4%. Then people just see the 4% and assume that every single counterparty is receiving that rate. Absolutely not. Absolutely not. And the fact that there are different rates tells you [laughter] that that their rationale depends on trust, that their rationale depends on counterparty risk and it doesn't necessarily depend on the amount of bank reserves in the system. Because if it didn't depend on trust, if it didn't depend on counterparty risk, then you wouldn't have multiple repo rates, would you? You just have one repo rate like the Fed. But the reason the Fed can offer one repo rate to everyone, even the guy that would have been charged 4.5%. Is because they can have negative equity. They don't care about a P&L. They can't go bust. Their balance sheet doesn't matter. Where a real bank, a real counterparty, then it does obviously matter. They have to get paid back. They have a P&L. They have a balance sheet. They can't have negative equity and so they have to be very careful about who they're lending to and they have to actually consider the risk where the Fed doesn't. Here's another I I should have highlighted this as well. If any borrower gets the reputation and this is a quote here guys I'm reading this. If any borrower gets the reputation of being riskier by using the Fed standing repo facility, it creates this perverse incentive for all the lenders to pull back at once, even if it isn't deserved. Once you get the stink on you, it's hard to recover. And this is again Thomas Simons, not George Gammon. And he's not some schmuck on YouTube. He is chief US economist at Jeffre. So what's the Fed gonna do? Well, they have to keep this illusion that they actually matter. They have to keep up this illusion like the Wizard of Oz that they're at the center of the monetary solar system. So they can't do nothing even though they know that they're irrelevant. So what are they going to do? They have to send a message. They have to send a signal. They're going to come out here and do quantitative easing. That's why uh my base case is that they start quantitative easing. I wouldn't be surprised if they start it before years end. In fact, I would be surprised if they didn't start it uh before years end. And it's it why? because they have to be seen as though they're doing something. Even though what they are doing has nothing to do with the problem that we have. And the problem that we have is not a lack of bank reserves. The problem that we have, if you just think about this for five or 10 minutes or just listen to Thomas, the problem that we have is counterparty risk increasing. And that's why you're seeing what you're seeing in this chart. And that's why you're seeing a lack of liquidity in these money markets. All right, guys. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market, capitalism, and we'll see you in the next video.