WTF Chart Of The Day: Fed Soaks Up Record $200 Billion In Year End Excess Liquidity

Tyler Durden's picture

A week ago the Fed announced its latest expansion to its Fixed-Rate Reverse Repo facility, which boosted the maximum allotment per counterparty to a whopping $3 billion from $1 billion (initially this was "only" $500 million), to wit: "this week the Committee authorized the Desk to modify the terms of the exercise.  The maximum allotment cap will be increased to $3 billion per counterparty per day from its current level of $1 billion per counterparty per day, effective with the operation on Monday, December 23, 2013." Some wondered why. Today we got the answer, when the Fed announced that an unprecedented $198 billion (that's 20% of a trillion) among 102 entities was reverse repoed to it (an average of just under $2 billion per counterparty) in what can only be characterized as the most grotesque temporary open market operation conducted by the Fed in history.


We will leave it up to readers to decide what is more surreal: that the Fed is allowing banks to "window dress" to the tune of several times more than total Treasury holdings owned by the Primary Dealers as disclosed by the Fed, or that there is an unprecedented $200 billion in free liquidity floating out there.


And yes, nobody actually ever had to sell anything to hand over the fungible electronic cash equivalents to the Fed because... the magic of repo and shadow banking rehypothecation of claims. Remember: $2.5 trillion in excess deposits serve as dry powder to chase risk higher purely in the form of initial margin on marginable securities like the E-Mini, and no money every actually changes hands.

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spinone's picture

If the economy is recovering, why does the FED have to intervene so much?

Xibalba's picture

I think you answered your own question 

nope-1004's picture

The FED is the market, because nothing else exists.  Consumers are strapped, credit is saturated, demographics pushing unfunded liabilities to the brink.  The entire ponzi is the FED and Bernocchio is leaving because he knows what's coming.

From Silver Doctors today:  Who controls the US media?  This shows how desperate the consumer economy has become.


DoChenRollingBearing's picture

Your comments match the anecdotal stories that I see and hear.  Except for the wealthy NO ONE among the people I know has much money to spend.

Yet the malls are crowded...  Someone resolve that one for me.

Grande Tetons's picture

I keep telling my wife things are tough. She still goes to the mall and spends MUCH less than she used to.  

I convinced her that buying Gold and Silver were a better idea than bling. No divorce in my future. 


Beam Me Up Scotty's picture

"She still goes to the mall and spends MUCH less than she used to."

Thats what YOU think.  She's probably got some cashflow going on the side that you are unaware of.  Pole dancing?  Sugar Daddy?  Its hard for women to actually restrain themselves when they are shopping.......I just HAVE to HAVE IT!!

Grande Tetons's picture

Good point.  

Guess I need to put some cash aside for a chastity belt. 

Alternative's picture

If she was born and educated in Merka, forget about that fantasy. In any case, won't last.

Crash Overide's picture

Stay tuned, later in the show they should try to ram through some more planet killing legislation or a new executive order to keep us all safe of course when the house of cards they built falls down.

Happy New Year's fellow slaves, drinks on on the FED tonight and you can count on a hangover.

max2205's picture

Tightening...sureeeee.....4 days of Pomo taken back

Psst.... Hold on to 200 billion cause we are repo'ing it back.....BenYellen

Stackers's picture

I was wondering what was happening with the reverse repo system they were "testing" this fall and winter.


This is the mechanism for them to feed repo'able securities back into the market, so it's a big deal. i was expecting this increase sooner, with much more to come.

ZH Snob's picture

hey, Ben, please don't squeeze the Charmin.

bwh1214's picture

Help!!!  I do not understand the mechanism through which the fed “soaks up” excess liquidity.  I can understand that the fed can sell bonds on its balance sheet and soak up liquidity but I don’t understand how they can “soak up” liquidity any other way.  Are they managing to destroy dollars without selling bonds? How?  Confused over here, but I’m sure someone on here can explain it.  If the fed has another mechanism to soak up dollars that doesn’t involve selling bonds my thesis on them being trapped may be off.


bwh1214's picture

Thanks @Fight-Club.  I read the the bloomberg artical and now I understand.  This mechinism is only a temporary measure and really doesn't accomplish anything.  Tinkering more then anything.  The cash will be back in the system in under a month.


Occident Mortal's picture

Instead of selling the bonds for cash the Fed is loaning out the bonds for cash.

replaceme's picture

What is the expression "when the answer doesn't make sense, maybe it's because you're asking the wrong question"..?

So bullish, I suppose - right until the microsecond before it's not.

slotmouth's picture

Fed Statement

"Like earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."

OK, so they say they are going to end QE by mopping up excess liquidity via RRPs in 2009, then 5 years of QE then suddenly they start to taper followed by massive RRPs and we are just supposed to not read into this?


MeelionDollerBogus's picture

What, why not?

I don't see any droids.

fooshorter's picture

Any brave zerohedger want to clarify this to me, I looked it up on investopedia but Im unsure how unsurprised I am suppsoed to be :|

itstippy's picture

It's how Washington works.

Congress spends billions subsidizing tobacco farmers and oil companies, then they tax the shit out of the end products to raise revenue to pay for the subsidies, anti-smoking campaigns, and fuel conservation programs.

The Fed conjures up $1T annual in Quantitative Easing to provide needed liquidity to the financial sector; simultaneously, they run reverse-repo programs to mop up the excess liquidity in the financial sector.

Washington has to keep the money flow going so they and their partners can keep raking in the skim.  What the Hell do you want?  Cheap smokes, cheap gas, and honest currency?

tempo's picture

Reverse-repo? Is that some new sexual position?

MeelionDollerBogus's picture

well what do you think?
Ask yourself if you're being bent over & then ask the previous question again.

Fight-Club's picture

I suggest reading this article on Bloomberg.  Seems to be a temporary reversal of some of their bond purchases.  Perhaps it helps year-end FED balance sheet reporting?  Without affecting treasury prices/interest rates.  Stem the flow of money into the stock market?  

fooshorter's picture

This helped me


Thanks for all responses.


Based on the bloomberg article, it seems that the flood gates of free liquid money were lent by the FED with no counterpary collateral. Bonus Season! Duck Season! Bonus Season! Duck Season! Bonus Season! Bonus Season! Duck Season! Fire!

Max Damage's picture

And there will be bonuses all round for the banker twats on their free gift profits from the FED, at the expense of everyone else

beegle's picture

why do you imply velocity ? how does that affect main street ?

maskone909's picture

im no banking expert but it looks like the fed and the primary dealers are bracing for a wave of either inflation or a large jump in rates.  seems like they are trying to jumpstart inflation with minimum wage increases nationwaide, which would require the primary dealers to hold more cash to offset deposits. 

slotmouth's picture

No velocity until they end IOER.

Toolshed's picture

The fed has taken the banks cash in return for "renting" collateral. This would impair velocity I believe. The great lack of velocity of currency the last few years is what has prevented the massive printing from causing rampant inflation on main street. Could indicate a severe "good" collateral shortage in the US, much like what the EU system has been experiencing. But who knows really. Could be the fed would like to get some return on all that printing rather than paying interest on it sitting in bank's reserves on deposit with the fed.

maskone909's picture

"Could be the fed would like to get some return on all that printing rather than paying interest on it sitting in bank's reserves on deposit with the fed."

if that is the case, they are playing hot potato with live grenades

MeelionDollerBogus's picture

sounds like a cue for Kramer to pop in to explain we're really only playing hot grenades with live potatoes.

SDShack's picture

Minimum wage increase along with amnesty for millions of illegals... Summer Recovery 6.0!

MeelionDollerBogus's picture

You're all illegal

A real free market doesn't have immigration restrictions. Those anti-market moves are just another kind of price-control on wages by the state - the dream of the Statist to make slave-pens around you and for you to CHEER it instead of wondering why you put up with your slavery.

It is the prison you pretend can not exist so you can't see it

Stoploss's picture

It is why you are broke all the time. I.E. there is none and can never be any. Unless you have 20 bucks for a loaf of bread, and a bike to go get it with if you make it through the guantlet on the way to the store.


Fortunately, we only have three moar years of this left..

Happy New Year.

Overfed's picture

Fortunately, we only have three moar years of this left..


And then what? Chris Christie or Shitlery Clitnone are gonna fix it? Right.

tallen's picture

They're doing it to make their balance sheets look good at the year end. Full of safe AAA US T bills instead of crap.

Debtonation's picture

Does this mean the Repo market is about to break?

666's picture

Anything China can do, we can do better!

Pareto's picture

.....we can do anything better than China.  there.  finished it for ya. he he

ptoemmes's picture

Someone is trying to kick 2014 in the ass - or the balls - not sure which.

chdwlch1's picture

Floating Rate Notes go on sale January 29, 2014...I'd expect interest rates to rise once the PDs are sufficiantly positioned with the new FRNs. 

As far as timing the inevitable collapse goes, the new FRNs are a good gauge, but keep in mind that Operation Twist (long-dated bonds exchanged for 3-5 year bonds) concluded in 2012.  That would mean a collapse in the 2015-2017 timeframe just like many seem to be forecasting. 

Foreign holders of US Treasuries will let their current "twisted" bond holdings fully mature dramatically reducing their exposure to interest rate spikes.  By the time the twisted foreign bonds reach maturity, the big banks should be sitting on a nice pile of Floating Rate Notes.

Just my 2 cents...

quasimodo's picture

"Someone is trying to stick 2014 in the ass "

because it feels more like it to me. A large stick with all sorts of little buds where other twigs were broke off. Inflicting maximum pain and damage.

yeah, oh yeah Ben! Faster! Wait a sec! I hear Janet at the door!