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Why We Should Fear the REPO

/ Financial Markets 2014 Jul 28, 2014 - 02:25 PM GMT

By: Dr_Jeff_Lewis

All our times have come
Here but now they're gone
Seasons don't fear the reaper
Nor do the wind, the sun or the rain... we can be like they are
Come on baby... don't fear the reaper
Baby take my hand... don't fear the reaper
We'll be able to fly... don't fear the reaper
Baby I'm your man...


Reverse purchase agreements are the vehicle and fulcrum for the perpetual motion machine of modern finance. These daily transactions between institutions are absurd letters of credit in the shadows. They are central to our faith based monetary system gone horribly wrong. Backed solely by the diminishing collateral of a set of sovereign promises, they are about as likely to succeed as an actual perpetual motion.


(The REPO market) is the transmission mechanism that drives liquidity. It is breaking down beneath the surface.

From Wikipedia:

"A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower. They use their security as collateral for a secured cash loan at a fixed rate of interest."

REPO, also related to "shadow finance" is the core catalyst - the perpetual financial motion generator - the way constant leverage is conjured out of nothing on a daily basis. It drives worldwide liquidity and/or credit. It has enabled the funneling of credit into equities.

China has its own form of shadow finance -- using metal backed letters of credit - also now beginning to unwind. In fact, if you want to know where to find the lynch pin for these modern day paper systems, look to the shadows, where liquidity and leverage originate.

This is not what monetary historians had in mind for a "flexible currency".

REPO provides the liquidity that fuels the movement of energy. It fuels the trucks that deliver food "just in time" to grocers across the developed world.

The problem is that intervention is interfering.

The Fed’s experimental scheme to keep its member banks alive competes with the collateral the REPO market depends upon.

For a year the Treasury Advisory Board has been warning about diminished collateral.  The taper is most likely a direct result of those warnings.

Yet we are seeing a continuation of that pattern with the increasing number of failed auctions

According to a recent Bloomberg story:

“The repo market itself provides lubricant to the entire Treasury market,” Canavan said in a July 3 telephone interview. “Bills are a key lubricant to the repo market, and the supply of bills has fallen sharply. If this situation were to continue longer term, it would be a more substantial problem.”

No lubrication equals friction. Too much friction and the whole thing stops. And no one is prepared from the top down.

The mechanism of moving currency around a complex system like the one we are living by simply doesn't have enough redundancy.

There are no sprinkler systems. No emergency back up systems that will kick in and keep the gas pumps flowing.

Everything comes to a stand still.

Maybe it is part of the plan. Part of grand idea for a reset, planted as a seed long but now long past anything imaginable.

"It is perfectly obvious that the whole world is going to hell. The only possible chance that it might not is that we do not attempt to prevent it from doing so." - Robert Oppenheimer

Leverage by definition is fragilization and risk. It is pure socially excepted intervention.

Manipulation that is much different than the price control mechanism we see in the precious metals markets.

This is happening at every level of finance - but also trickles up into the culture and society. We all can acknowledge that (depending on your perspective society and culture) all seem to be headed in some direction - and usually the wrong one. When you consider the hierarchy of needs from the basic toward self-actualization, we are falling down very quickly.

Whether it is a black swan or a false flag matters little.

It is baked into the cake of out existence and perversely not out of economic or financial markets.

These events and more like them are characteristic of years of tension and misguided intervention.

REPO transactions are the modern day mechanism for monetary expansion. A more accurate euphemism would be electronic wheelbarrows.

There is no turning back. The deeper we go down the rabbit hole of computer finance, the further detached from reality we find ourselves. The tools have been exhausted. There is no way to avoid the inevitable. And intervention is pushing us toward a painful financial rebirth.

For more articles like this, and/or for a breath of fresh silver market reality amidst the stench of denial and technically meaningless short term price obsessed madness, check out http://www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2014 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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