Reverse-repo is an agreement used by businesses and banks, such as the Federal Reserve, as temporary lending to fund operations. Meanwhile, the Federal Reserve uses reverse-repo to control the money supply for the nation.
In other words, a repo is an agreement between the Federal Reserve and investors, where the investor agrees to purchase securities—United States government bonds—for a specified period of time… …temporarily agreeing to then sell back those same securities back to the Federal Reserve, at a higher price through the reverse-repo agreement…
They are nothing more than short-term loan agreements.
The Federal Reserve sells a Treasury bill, or government bonds, with the promise to buy back those securities on a specific date, through an interest payment.
Bonds determine the United States’ interest rates, which determines how easy it is, for you, the American citizen, to purchase homes, cars, and other things through credit and loans.
Basically, bonds provide extra spending money for the government and the American people.
Notably, foreign governments, such as China—one of the biggest holders of American bonds—purchase large amounts of Treasury bonds, handing the United States government a loan to pay for government programs, but also increases the nation’s debt.
If nations sold their bonds, or no longer purchased American bonds, the government would need to find a different route for obtaining money, or a loan.
However, realize that money is nothing more than an agreement between two parties. Money is nothing more than ink printed on a piece of cotton.
What would happen if the world stopped buying American bonds, or if the United States decided to stop paying its debt?
Nothing, really.
Taxes, over-spending, government regulation and laws, and foreign aid and wars have a greater impact on the American economy than bonds do.
If we wanted to save the United States, we would stop over-spending, and stop giving away America’s wealth to the Federal Reserve and to the entire world, via foreign aid.
h/t Krazed