The recent spike in repo rates didn't just happen out of the blue, Jeff Snider, head of global research at Alhambra Investment Partners, told Real Vision.
On a surface level, what happened is that the repo rates spiked because of a lack of liquidity, which caused the Fed to start injecting liquidity.
But liquidity isn't the only issue, Snider said: "There's something else going on here because this keeps building and building. What happened last week was it finally broke out into the open so that everybody started paying attention to something that had been happening for quite some time beforehand."
Something's Going On
"The main takeaway is simply that something's going on, and it doesn't seem like our policymakers, the authorities have a whole lot of answers," Snider said.
The Fed has been repeatedly incentivizing banks to lend some of their free reserves into repo, but the banks have not been taking the bait.
At least part of this, Snider, explained, is due to banks being gun-shy after 2008. "2008 was a systemic break," he said. "The system was never ever fixed."
And because the system was never fixed, the banks are unwilling to deploy into the same strategies that they saw break down the system in 2008. "What we're really talking about here is a credit-based global monetary system, and credit-based means something," he said. "If the banks aren't willing to put in the resources, to put in liquidity, to put in the balance sheet expansion for that system to operate, the inherent instability in it shows up."
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