Commentary: Fed move causes collateral shortage in repo market

05/23/2013 | Wall Street Journal, The

Andy Kessler, a former hedge fund manager, writes that the $4 trillion market for repurchase agreements is facing a collateral shortage because of the Federal Reserve's purchases of Treasurys. "In other words, the Federal Reserve's policy -- to stimulate lending and the economy by buying Treasurys, and to keep stimulating until inflation reaches 2% or unemployment is lower than 6.5% -- is creating a shortage of safe collateral, the very thing needed to create credit in the shadow banking system for the private economy," Kessler writes.

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