The Wrong Bazooka: Dealers Take Just $10BN Of $500BN Repo

The Fed may have hoped that when it announced up to $5 trillion in monthly repo capacity last week, it would ease the funding crisis that has dragged the dollar to three year highs.

Alas, as Zoltan Pozsar explained earlier (when he demanded a Fed backstop of virtually anyone, anywhere), so far it is failing as just confirmed by the latest ad hoc repo operation that was announced earlier today, supposedly to reverse the spike in overnight GC funding, yet which saw the lowest submissions of any of the Fed’s expanded repo operations yet: with up to $500 billion in total capacity, the repo operation saw only $10.1 billion in submissions, or just over 2%!

So if domestic repo lines are not the panacea that is needed to thaw the dollar market, what is? For the answer we point readers to the rather draconian conclusion offered by Zoltan Pozsar earlier today, which was the following:

backstop not only the banks at the core of the financial system, but also markets and non-banks. The market backstops should include the CD and CP market where we need a buyer of last resort as the structural buyers of paper are losing cash fast; the backstop of the FX swap market should include daily operations at more points along the FX curve.

In other words, we have cross a rubicon where absent a backstop and bailout of pretty much any USD-denominated financial asset anywhere will lead to an acceleration of the already acute dollar short squeeze which JPM calculated to be as large as $12 trillion.