2011-05-23economicpolicyjournal.com

... the Fed is considering draining the reserves by getting money market funds to conduct reverse-repos with the Fed. This gets a little technical, so just know that if the Fed does reverse-repos with money market funds, it will drain reserves from the system. But the money market funds have nowhere near the cash on hand to do the sizable reverse-repos with the Fed that the Fed may need to do...

Huge sales of short-term paper would panic the markets. It is a very dangerous scenario.

The Fed knows this. When they actually figured this out I am not sure. Trust me, they would have never started paying interest on reserves, if they understood the problem back then.


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