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uhsguy · 1678 days ago · link · · parent · post: The Fed just pumped $128 billion into markets to pull down interest rates, its first injection in 10 years
The repo rate is supposed to be a risk free loan it’s backed by collateral and is repaid the next morning. It’s like if you wanted to borrow 3 bucks from me and you gave me a fresh gallon of milk in return. My household can easily consume that milk so if you paid me back the 3 bucks and a penny then great not a big deal. The problem comes around when you want to borrow 3 bucks and you have a carton of freshly expired milk, because now there is a chance the milk won’t be any good if you choose not to play me back, and really if all you have to offer for collateral is expired milk perhaps you won’t come get it tomorrow, now I might want 3.50 tomorrow to compensate for the risk.