It's not how I'd characterize it.
The parts I agree with are that 1) there is a $2 trillion T-bill shortage relative to long-duration bonds (and that's why reverse repos are being used so much) and that 2) this ultimately will move to the dollar itself. The way to save the banks is to hurt the dollar, and if savers change their view that the Fed will get under control, then it would represent a sizable regime change in markets.
But I don't view it as correct to say that the main problem is a collateral shortage. The main problem is that rates rose at a record pace, which means banks' bonds fell in price at a record pace. Meanwhile, the Fed is sucking total liquidity out of the system, and money is moving from deposits to money markets or T-bills, which leaves banks vulnerable to having to sell their bonds and realize the losses (or turn to use the BTFP which is a very expensive funding source relative to deposits).
Thank you for your reply.
Can you explain how the $2 T bill shortage happened relative to long term bonds? Was that because of QE or something else?
Also, is there a way to measure how much consumer deposits moved from savings / checking accounts to money markets and t-bills?
I know that we’ve seen ~$600B in withdrawals from deposits, one of the largest drawdowns in history for us banks…
However I couldn’t find where that went, I did find “debt securities” which includes municipal bonds, corp bonds and CDs among other things from 2020-2022 (household & non-profits) went from $4.5 T to $3.14 T to $4.5 T
So it seems that there was not some major exodus from deposits into t-bills based on that data…
https://www.federalreserve.gov/releases/z1/dataviz/z1/changes_in_net_worth/chart/
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