Can you believe it’s already the end of the year? So much has happened over the past 12 months - it feels like time has flown by when I look back.
But that’s the catch, isn’t it? Time moves in one direction, memory in another.
In this week’s edition of the Morning Pour, I’ll keep it light as we wrap up 2024. I’ve selected three standout pieces from the year, offering fresh insights and reflecting on ideas that still resonate.
As always, I appreciate your feedback. Hearing from you is a highlight, and it’s been a pleasure knowing these editions have resonated with some of you.
Adem Tumerkan
Editor
*Note: All original articles are linked in the headers.
1. A Dive into the Overnight Reverse Repo Market and the Cracks Within (February 2024)
Back in late February, I wrote to you all about the overnight reverse repo market (exciting, right?) and why it was showing some concerning trends.
If you haven’t read it yet, I recommend checking out the original piece (linked above) for the full picture. But here’s the gist: the overnight reverse repo market is a relatively safe, risk-free place where banks and big money groups (like mutual funds, etc.) park extra cash at the Federal Reserve for a night, rolling it over day by day.
Why? Because sometimes, there aren’t enough short-term, low-risk investments to absorb all that money, so they turn to the Fed for a secure, small return. It also helps the Fed manage the flow of money and keep interest rates steady.
This is why the Repo market is called the “beating heart of the financial system” because it acts a barometer of the financial system. When usage spikes, it signals excess liquidity. When it drops, cash is growing scarce.
So why does this matter now?
Well, when I wrote back in early 2024, the overnight reverse repo market had fallen from its May 2023 peak of $2.4 trillion to just $550 billion. I hypothesized it would be nearly drained by the end of summer.
Well, I was half right - the timing was just off.
Recently, it dipped below $100 billion, marking its lowest level since 2021.

Figure 1: Bloomberg, December 2024
This signals liquidity has been significantly drained from the banking system – aka less excess money sloshing around.
And at first glance, this might seem like a good thing, especially given the inflationary pressures caused by too much money in the system. But it could spell trouble for banks as their reserves - deposits held by banks at the Federal Reserve - may now dwindle.
And dwindle they have. . .
According to the Fed, bank reserves have fallen 10% since late January 20241.

Figure 2: St. Louis Federal Reserve, Dunham December 2024
A shrinking repo market reduces liquidity, raises funding costs, and forces banks to rely more heavily on reserves - potentially limiting their lending activities.
- Put simply: As the repo market shrinks, banks are forced to lean more on their own reserves at the Federal Reserve to meet obligations or fund lending. But reserves are finite. Excessive reliance can deplete these holdings, limiting a bank's ability to lend, invest, or even operate flexibly.
To put this into perspective: in September 2019, a steep decline in bank reserves caused turmoil in the U.S. repo market. Short-term interest rates exploded unexpectedly, and the Fed temporarily lost control of those rates as policymakers scrambled to stabilize the system with emergency liquidity injections.
Moreover, the 2008 financial crisis underscored the repo market’s dual role as a vital liquidity source and a potential systemic risk during times of stress.
Now, with the repo market edging closer to zero, the risks of unforeseen consequences are growing2.
And while it’s true that bank reserves are much higher than in 2019 ($1.5 trillion vs. $3.2 trillion), even small declines can still create problems. Banks have adapted to operating at these elevated levels, and like an alcoholic with a high tolerance, even a small cutback can have outsized withdrawal effects.
- Thus, a noted above, the 2019 repo squeeze reminds us that stability depends not just on the absolute level of reserves but also on the system's expectations and needs.
I’ll explore the implications of declining bank reserves in an upcoming Morning Pour. But for now, the downward trend in the overnight reverse repo market is a sign that interest rate instability could be on the horizon.
Time will tell.
2. Trade Wars Redux? China’s Manufacturing Glut and its Global Implications (April 2024)
In April, I wrote about China’s slowing economy and why things might get worse before they get better. Eight months later, the situation looks even bleaker.
But – contrary to the mainstream media - here’s the real twist. . .
While China’s domestic challenges continue to mount, its stimulus efforts are sending huge ripple effects through the global economy.
In short, China has been aggressively trying to export its way out of a housing like recession (essentially their own version of 2008). And since they’re unable – or unwilling – to stimulate enough to revive domestic demand, they’ve aimed to sell more abroad. This approach helps avoid tough domestic policy decisions – aka kicking the can down the road.
And while this strategy might work for smaller economies, it’s a huge issue when the world’s second-largest economy does it.
For starters, China’s nearly $18 trillion economy needs massive export volumes to restart growth. That means the rest of the world must absorb these exports.
The result? A flood of cheap Chinese imports that crowd out other countries’ manufacturing and raises unemployment.
We’re already seeing the backlash, with countries like Brazil, Canada, the European Union, and even Russia throwing up import taxes to protect their industries from the Chinese glut.
But one country and industry, in particular, is feeling the brunt of this.
I’m talking about Japan and its once-dominant car producers. . .

Figure 3: Bloomberg December 2024
Amid China’s export surge, autos have been grossly overproduced. For example, in late-2019, China exported about 1 million vehicles. By 2023? Nearly 5 million - a whopping 400% jump in just five years.
Here’s a chart showing just how huge this is4.

Figure 4: Council of Foreign Relations. December 2024
It’s no coincidence that as China’s economy began to falter, they ramped up manufacturing and exports - heavily backed by government subsidies.
Take the electric vehicle (EV) sector. Between 2009 and 2022, China’s EV industry received a staggering $231 billion in government aid. This has crushed global pricing, leaving Japanese (and even German) automakers scrambling to stay profitable.
And it’s likely to get worse. . .
According to Goldman Sachs5, China is on track to reach an electric vehicle production capacity of around 20 million units by the end of 2024. By late 2025, that figure could climb to 25 million, as the country’s output grows by roughly 4 million cars annually. This surge is fueled by significant investments from Chinese automakers, who are doubling down on their EV ambitions.
For Japan, this is no small matter. It’s existential:
- The auto industry is 20% of their industrial output.
- It employs 5.5 million people (8% of the workforce).
- Cars make up 15-20% of Japan’s exports - a big part in an otherwise consumption-shy economy.
Now, to stay competitive, Honda and Nissan are in talks to merge - a bold move to counter China’s growing dominance in the global auto market and maintain profitability.
This could mark the second innings of a global auto sector war. So, keep an eye on this trend - more tariffs, trade disputes, and auto mergers might soon follow worldwide.
3. The De-Dollarization Dream: Why a BRICS Currency Is Still Out of Reach (October 2024)
I wrote this recently, but given the latest developments, it’s worth revisiting.
Here’s the gist: the mainstream media loves to hype the idea of a BRICS currency (representing Brazil, Russia, India, China, South Africa, and a few smaller nations) dethroning the U.S. dollar. But the reality is it’s just not feasible under the current global economic system.
Why? Because the U.S. is the only deficit nation that truly matters.
Remember, a U.S. deficit means an equivalent surplus elsewhere. And as the chart below shows, surplus countries (like China and Russia) are effectively "saving" on a global scale, while deficit countries (like the U.S.) are "spending" more than they earn internationally (I wrote more about this dynamic in late-2023, read here if you want more information).

Figure 5: Trading Economics, Dunham December 2024
And when they save more, they consume less (you can’t do two things with the same dollar at the same time – either park it or spend it).
Thus, surplus-driven economies can’t simply “replace” the U.S. dollar with a BRICS currency without upending their export-driven models. For them, it’s like cutting off their nose to spite their face.
- It’s the only large deficit nation in the BRICS bloc. So, without India on board, the idea of a unified currency crumbles.
Meanwhile, U.S. President-elect Donald Trump warned BRICS nations in late November that any attempt to launch a dollar alternative would face serious consequences, including a 100% tariff.
For BRICS nations, alienating the U.S. - the world’s biggest net-buyer by far - is a risk they can’t afford. They depend heavily on U.S. markets and the purchasing power of America’s thrifty consumers.
Sure, it’s possible this could happen someday. But for now, I stand by my original hypothesis that this is more mainstream media hype than a realistic threat.
Put simply, the de-dollarization dream remains just that - a dream.
But as always, tune out the noise and focus on the global flows of money and goods. That’s where the real shifts begin to show.
Sources:
- Liabilities and Capital: Other Factors Draining Reserve Balances: Reserve Balances with Federal Reserve Banks: Week Average (WRESBAL) | FRED | St. Louis Fed
- Is a repeat of the 2019 repo crisis brewing?
- From Honda to Toyota, Japan’s Carmakers Are Losing Ground to China’s BYD, Geely
- Will China Take Over the Global Auto Industry? | Council on Foreign Relations
- Electric vehicles are forecast to be half of global car sales by 2035 | Goldman Sachs
- India Downplays BRICS Common Currency Plan That Angered Trump - Bloomberg
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