Chief economist, Invesco John Greenwood
London The notion that a trillion dollars in reverse repos has reduced the money supply by even one dollar is nonsensical. Reverse repos are a liability of the Fed and an asset of the banks and money-market mutual funds (MMMF) that loan funds to the Fed via reverse repos. Deposit liabilities of both banks and MMMFs are constituents of the money supply. These liabilities remain unaffected by the choice banks and MMMFs make about whether to place their assets in the Fed’s reverse-repo facility, Treasury bills or elsewhere. Contrary to the Gramm-Saving analysis, the Fed’s reverse-repo program has no effect on the money supply.
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