Debasement derailed. @JeffSnider_EDU frequently tweets Portents of Doom from the money markets. Now we have actual doom!
The story makes sense. People are hoarding USD, pushing up the value and short term rates. It started around Oct 3, before the crypto flash crash on Oct 10
One Portent of Doom is bank rates jumping up over the fed rate. Snider thinks this is happening because people are worried about getting paid back on loans, are hoarding dollars, and creating a bit of a dollar shortage ...
Friday's repo rate spike was the most since March 2020 and is starting to display the same kind of volatility and tightness as in 2019 leading up to repo mess. Fed will ignore it as long as it can until it just gets worse then will panic into a not-QE QE.
Especially since Fed repo isn't working (shocking!!) to keep repo rates behaved. The whole point of the standing repo facility is to provide repo participants the ability to borrow reserves whenever conditions get tight. That way the market doesn't see repo rates look like they did six years ago.
They're looking like they did six years ago even though there is a standing repo facility from the Fed.
So what's the deal here?
Officials are going to downplay it as technical matters when the cockroaches would like a word. The problem isn't the Fed, the number of reserves, or the ways in which market participants can get them, it's why money (and collateral) isn't circulating the way it had a few months ago.
Did something change over the past few months? Job losses? Private credit bankruptcies? Collateral questions across the entire shadow banking space?
Nah, it's just QT. 😆
The effect is exaggerated in DeFi. Morpho shows money being pulled out of higher rate/risk vaults into risk-off vaults. Low risk-off rates show that in the short term, deflation is winning and risk assets like crypto are losing. Monetary Portents of Doom give advance warning
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