Cracks emerging in money markets?

Discussion of the Cash portion of the Permanent Portfolio

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welderwannabe
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Re: Cracks emerging in money markets?

Post by welderwannabe » Wed Feb 05, 2020 1:38 pm

Im not sure there are cracks emerging in money markets. There are many theories on why this is happening. One is the concern about counterparty risk which really came to the forefront with the MBS crisis.

My theory is that is is more likely because the Fed started paying interest on reserves, both required and excess. The fed pays 1.6% right now on any reserves held with it. If a bank can just deposit with the fed and earn a guaranteed 1.6%, why bother with the repo market and take whatever limited repo risk?

They started paying interest on reserves to make it more palatable for banks to have higher reserves....making them stronger. However, this is a form of money tightening IMHO.

Therefore the Fed is stepping in.

Its definitely broken, but im not sure I would read in that there is a lot of risk in money markets now.
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Smith1776
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Re: Cracks emerging in money markets?

Post by Smith1776 » Thu Feb 06, 2020 3:59 pm

I keep reading this thread title as something like "emerging markets money market funds".

And i'm like... why the hell would anyone buy something like that??? :D
I still find the James Rickards portfolio fascinating.
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