One of the most vital pieces of plumbing that powers the global financial system usually runs so smoothly that it gets overlooked by market watchers. It’s the “repo market,” comprising the short-term funding that banks and financial counter-parties regularly tap to lend each other trillions. It’s suddenly in the news again, and for all the wrong reasons. The repo market is looking a lot like it did on the precipice of the 2007 housing market crash.
More info in the article
https://fortune.com/2019/09/23/repo-market-big-deal-400-billion-bailout-unnerving/
My thoughts on this news
Basically the US Economic system collapsed in 2008 (not just US, this is a global problem) and all the growth we have been seeing since has been artificial. The banks created too much debt/loans and gave that money to people who could not pay it back. So the Federal Reserve in 2008 (aka the US Government) had to create lots and lots of money from thin air and give it to the banks so the banks could continue functioning and not go bankrupt.
Now 11 years later we are seeing similar problems, the banks are once again running out of money. The banking system is like a big club, and the Federal Reserve is like the big brother that has all the money and never runs out, the banks lend money to each other all the time in short-term transactions called Repos. For some reason liquidity in this market dried up and interest rates jumped from 2% to 10% in a matter of hours, and the Federal Reserve had to step in and create some new money out of thin air to keep the interest rate at 2%.
So where did all the money go...? The US Government has granted the power to the Federal Reserve and US Banks to create money, and they do it all the time through fractional reserve banking by creating loans and giving them to people. Every time a bank creates a loan and gives that currency to someone the supply of money is increased. So all the money they have created throughout the history of this country has to be somewhere in circulation, who is hoarding all this money to where banks, all of a sudden no longer have enough to lend to each other...?
The answer is simple, wealth inequality, is the destroyer of economic systems.
When the minority wealthy are holding the majority of the money that has been created in an economic system the majority of the population suffers, because they are not earning and spending enough to keep the economic system functioning smoothly. Not even the banking system is immune to this problem as we saw in 2008, they need to be bailed out by their big brother the Federal Reserve, unfortunately that leads to inflation and higher prices for everything...
