What is the Federal Reserve doing with this Repo thing?

Scott, What is the Federal Reserve doing with this Repo thing? Do I need to worry? -MC

MC, Worry never helps anything, so don't worry. Next question...

Jokes aside, a lot of people are wondering what the Fed is doing with this Repo thing. The Fed isn't exactly going into any detail about it. 

Repo stands for Repurchase, banks often need some cash on hand to settle accounts and keep their reserve funds at legal limits so they borrow money from other banks using assets for collateral that they intend to repurchase, often overnight. Repurchase = Repo.

This has been going on for decades. Usually it goes off without a hitch. Sometimes it doesn't. Sometimes like before the 2008 crash and other crashes, so when it gets off the rails people worry.

What happened is banks basically ran out of money and they had problems borrowing cash from other banks to cover these day to day cash on hand problems. Not that they were bankrupt, they just have their cash tied up in something. The bank to bank interest rate shot up like toast in a toaster recently because there weren't enough banks loaning money to keep the system liquid or afloat. The Fed stepped in and put about a third of a trillion dollars in Repo operations so far and it seems there is no end in sight. In fact, we are hearing they are thinking about making some sort of Fed Repo funding permanent.

So where did the money go? That is a good question and no one is saying anything that really would cover all of it. Home loans are going down and people are refinancing and buying. Tax collections are up and businesses are pulling money out of accounts to pay them. There is a lot of money in the stock market and in my opinion, a lot of money going overseas into dark (which just means we can't see it) banking and investing. Money sent overseas often comes back as the owner purchases things in dollars, but it can take time.

The takeaway is, no doomsday any time soon, but it is a wake up call to get things in order. The Fed is pumping money in, so I don't see a crash from this at least for a while, the questions is how much can they pump in before we see other problems, including a lack of confidence and what that causes. We have several threats to the economy, but they may just sort themselves out before we crash at least this time.

Anyone that has any financial sense can tell you what the next big moves will be. The stock market will correct or worse, housing will go down and especially in areas, we will see deflation followed by inflation, but the question is when?

Pay off your debt as fast as you can manage, especially personal debt, keep some cash outside of the banks and banking system, watch the stock market if you have anything in it, this includes retirement, put some money into hard assets that won't be affected by the next Fed experiment and always look for investment bargains and sound opportunities.

Best,
Scott Hogue