I regularly cover developments in the Fed's ridiculous Reverse Repo (RRP) program in the MacroLiquidity Pro Trader Report. That short section of the report is normally just a mundane account of what went on in that useless program over the course of the week.

I say that the program is useless because the Fed will almost certainly never use it for its supposed purpose. That purpose is to get interest rates to magically rise when the Fed decides it is time, at the same time that there are trillions of excess reserves in the banking system. If by some strange Kafkaesque plot twist, the Fed really does try it, there's no way that it can work. That's because paying banks more interest lowers their cost of funds, which is hardly an incentive for them to raise rates.

That's just the preamble for what I have to tell you here. There has been so much misinformation and gnashing of teeth in the financial blogosphere about the spike in the Fed's RRPs outstanding last week, that I must set the record straight. The RRP spike is a non-event.

The spike in RRPs is not evidence of a mushrooming financial catastrophe and crisis under way. It's not that there isn't a mushrooming financial crisis under way. There is. It's just that last week's RRP spike has absolutely nothing to do with it. It has to do with a Fed stupid parlor trick and the temporary shortage of short term T-bills along with the resulting excess of cash. Below is my coverage of the subject from the most recent weekly MacroLiquidity Report.

The two salient facts are that the Fed regularly does two quarter end term repo operations that add to the end of quarter amounts outstanding. They are not a response to any market conditions. The Fed reveals in its FOMC meeting minutes and elsewhere that it instructs the NY Fed to conduct these quarter end operations. It has done so every quarter this year. The NY Fed posts a statement laying out the operations a few days in advance of the end of the quarter.