Thread by @TheStalwart

Here's how to understand the repo market craziness:

If you have $100,000 in the bank, and you have zero debt, everyone would agree that you're both solvent and liquid. 1/

But if you have a weed dealer coming to your house, you need to pay cash (because duh). So money in the bank isn't what you need. 2/

So you'd just go to the ATM, but if the only ATM near your house is broken, then you might need to borrow cash from a roommate and promise to "get them back" by paying them back tomorrow and by giving them some of what you buy. 3/

If you gave them some of what you buy, that's a de facto very high interest rate! Even if you're totally solvent and liquid! 5/

The takeaway though is not that there's some big solvency crisis. But that they need to fix the ATM on your block. 6/

The bottom line though is that different types of transactions require different types of money.

A drug deal might need cash.

Paying your rent typically requires money in your checking account.

A bank-to-bank transfer is done via reserves 7/

But hopefully you can see that there can be a technical shortage of a specific kind of money, which doesn't necessarily reflect a liquidity or a solvency problem overall. Fin.

(And just to drive home the key point, the obligation to pay your friend back in the form of some of your drug purchase explains why even a rich, solvent borrower may at times be forced to pay an elevated level of interest to get access to a specific type of money.