• Bank reserves fell to $3.095 trillion, with a repo-to-reserves ratio of 85.5% triggering the latest repo calypse.

• Credit card defaults have risen to levels seen after the 2008 financial crisis, but banks are facing a liquidity shortage that won’t last this year.

• Expect a serious dollar crisis this quarter, with Bitcoin likely to fall sharply and gold prices to rise as the Fed’s options dwindle.

As expected at the end of the year, banks’ reserves, as usual, fell sharply and flew into reverse repo transactions to make banks’ balance sheets look thinner than they actually are so that regulators can give them shiny stickers, because they really are are good banks. Reserves fell to $3.095 trillion yesterday with SOFR volume at $2.474 trillion. That’s 80% of reserves trading back and forth overnight. The repocalypse zone is about 83.5%. 80% is slightly above the value on October 2nd^nd High (end of quarter) of 78%, so we are heading inexorably towards (final?) repo congestion.

If we take into account the level of bank reserves on Wednesday, and not the weekly average, then the ratio reached 85.5%, which means it was already in the repocalypse zone.

However, Wednesday’s level is somewhat misleading as Wednesday was the real year-end turning point where banks take their farce to the maximum. In any case, the reserves fell below the crisis level of $3 trillion, which is related to and, in my opinion, caused the regional banking crisis. However, keep in mind that immediately before the regional banking crisis, reserves had already fallen below $3 trillion by the end of December 2022. The regional banking crisis only came in March. So there is a delay, but not much of it.