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> Mr. Pozsar doesn’t expect a sharp rise in short-term yields. Instead, he predicts reserves will gradually shift away from banks to the reverse repo facility a

> Mr. Pozsar doesn’t expect a sharp rise in short-term yields. Instead, he predicts reserves will gradually shift away from banks to the reverse repo facility as money managers let short-term Treasurys mature. Wall Street’s casual attitude toward that shift underplays its uncertain consequences, which could include unexpected volatility, he said. > “We are talking about a big rotation and quite a bit of money going from bills to the reverse repo facility,” he said. “More bills will be issued and someone will have to soak them up.” The big question is then 'Who will soak them up?' IANAE but this seems to be a case of drowning in the success of current initiatives. The problems which arise within the current solution (lots of money, few places to spend it, everyone leveraged to the hilt) are now predominating at the solution is to do what... more of the same?

nickysielicki 5y ago
> the solution is to do what... more of the same? Redefine what it means to be leveraged, allow for banks to partake in riskier investments than current regulations allow, creating an enormous bubble? I sure hope not but I don't see what else could be done. This money has to go somewhere!
jimmydorry 5y ago
The problem is three-fold. 1) Too much money in the system from close to 13 years of almost uninterupted qantitative easing. 2) Not enough collateral in the financial system to offset the liability of holding so much customer money (as a bank), with increased uncertainty about an impending market correction (hence banks favoring short-term, safe returns that they can mobilise very quickly). 3) Not enough collateral to keep leverage in check with mandatory limits (these mandatory limits were suspended through covid-19 times and have just been reinstated, although I may have missed this date being pushed out).

nickysielicki 5y ago

> the solution is to do what... more of the same? Redefine what it means to be leveraged, allow for banks to partake in riskier investments than current regulations allow, creating an enormous bubble? I sure hope not but I don't see what else could be done. This money has to go somewhere!

jimmydorry 5y ago

The problem is three-fold. 1) Too much money in the system from close to 13 years of almost uninterupted qantitative easing. 2) Not enough collateral in the financial system to offset the liability of holding so much customer money (as a bank), with increased uncertainty about an impending market correction (hence banks favoring short-term, safe returns that they can mobilise very quickly). 3) Not enough collateral to keep leverage in check with mandatory limits (these mandatory limits were suspended through covid-19 times and have just been reinstated, although I may have missed this date being pushed out).