Thanks and great questions.

1. I've come to see velocity as largely a technological and innovation issue. Trade clears on repo ~instantaneously (on the commercial side), so how could it get faster? And even if we found improvements, which we gradually do, it's not something we can just easily turn up or upgrade like our wifi speed.

2. The Fed can't really create new reserves, they can only incentivize banks to hold "reserves" instead of tbills (collateral), which is the opposite of what they should be doing. QE is an asset swap and there is no new notional dollars in the system.

Commercial lending (in repo) creates money and the Fed neither regulates or tracks it.

3. And that leads to why collateral is safer than cash... Cash is useless.

As mentioned, cash held at a bank has counter-party risk. Cash is only FDIC insured up to $500k, and so a MMF wanting to not carry the small risk that their cash gets tied up with bank troubles, can exchange their cash for some sort of collateral on an overnight basis in repo. So they could lend cash and get TBills, which is a liability of the Fed instead of a commercial bank. So if there is a failure, instead of having cash locked up, they sieze the asset/tbills.

However, there are some other reasons. Second being that they can lever up with collateral, as it can be given on margin.

But third, and most importantly, that collateral can then be used in global trade and cash can't.

This is a bit counter intuitive to what one would assume or would read in Bloomberg, but global trade is cleared with collateral... And since cash is a liability of a commercial bank, it isn't good seizable/liquid collateral.

Instead, dollar denominated assets (bonds, commercial paper, MBSs, etc...) are used as collateral - these are "EuroDollars", the global reserve currency... not cash.

Technically, an individual is also only FDIC insured up to $500k, but their trade is typically done with cash equivalents/credit. So an individual could have some risk having more than $500k in a single financial institution, but hopefully they aren't funded on an overnight basis that requires constant liquidity - like Bear Sterns and Lehman, where one day without rolling over debt was their demise.

Plus, an individual owning TBills most commonly owns it in a brokerage account with a commercial bank, which is still a liability at a commercial bank.

4. And this leads to Bloomberg's RRP myth, that cash is so ample that they need to park it with RRP.

If the media understood Repo they wouldn't have perpetuated the myth that the 2008 GFC was a mortgage issue, and not a repo failure.

But the crux of this misunderstanding is the value of cash vs collateral.

The RRP myth is easily disproven because the market rates right now are below the Fed's "target" rate.

Right now the Fed's overnight rate is 8bps and will be 130 in weeks, and yet the market rate is 60-65 bps for the 4 week...

https://fred.stlouisfed.org/series/DTB4WK

If everyone could park their funds with the Fed at that rate they would. And if the Fed actually controlled rates that number should be higher than the overnight rate. But there is a scarcity of collateral and so dollar denominated assets get bid up in price.

Even today, there are corporate bonds well above 100 (like Apple). Why would anyone pay $1.10 for a dollar (when coupon is only ~3)? You would just sit on cash.

But for global financial institutions, the collateral is useful in global trade and the dollar is not.

So, if one has the perspective of a commercial bank, cash is useless and collateral is safe, useful and can provide leverage.

This is the Buffett clip I shared, where he is saying the ONLY collateral accepted in a panic is US Tbills, the only collateral without counter-party risk.

5. Well, I can't give trading advice, because it's just too hard to know someone else's situation and it's just hard to know how to play this.

I personally buy cheap out of the money out in the future (like Apple for 1 cent) as a hedge and I recommend most people just stay cash. I’ve personally sold all stocks.

Also, my mentality is to never feel you "missed" it and never assume it's over. These things can last years and provide nobrainer opportunities for those who have cash.