IS THERE A LIQUIDITY CRISIS OR NOT?

“My antenna goes up when things like that happen. I probably shouldn’t say this but when you see one cockroach there are probably more.”

“My antenna goes up immediately when things like that happen. I probably shouldn’t say this, but when you see one cockroach, there are probably many more.”
— Jamie Dimon, CEO of J.P. Morgan, October 2025

On 10/16/2025, the SOFR rate — a measure of short-term collateralized borrowing costs backed by U.S. Treasuries — surged to 4.30%, higher than the Effective Fed Funds Rate (4.11%).
In technical language, it's just a “spread of a few dozen basis points.” But in monetary biology language, it's skyrocketing blood pressure: a sign that dollar blood is flowing with difficulty in the U.S. financial circulatory system.

Repo, seen as Wall Street's “oxygen tube,” began to clog. Banks, money market funds and institutional investors had to pay higher prices to exchange for one night of liquidity – the “night of survival” they once took for granted.
At the center of that picture, the Federal Reserve (Fed) is breathing through the very breathing tube they attached to the system: Reverse Repo Facility, a tool once designed to absorb excess liquidity, now turned into an emergency oxygen tank.

The 2025 “Repocalypse Redux” is not as noisy as the 2019 repo shock, but deeper and more dangerous.

• Bank reserves fell to around 3 trillion USD, the lowest since 2021.

• Reverse Repo Facility (ON RRP), once a giant “reserve water lake” holding 2.2 trillion USD, now less than 300 billion.

• Meanwhile, the U.S. Treasury continues to pump out mountains of T-bills, draining dollars from the system like someone just opened a blood valve in the operating room.

The result is a paradox: liquidity still exists, but it can't flow. Like blood still in the body, but the vessels are clogged. Fed — which just drained blood through Quantitative Tightening (QT) — now faces a life-or-death choice:

continue tightening and let the repo heart stop beating,
or stop QT to save the very system it created.

In a post-2020 world, where money becomes a political tool and public debt is the new religion, “liquidity” is no longer a technical concept — it is the biology of American capitalism. When repo trembles, it signals not just technical risk, but institutional fatigue: a sign of an economy straining to maintain faith in the USD, in the Fed, and in its own operating mechanisms.

This week, Viethustler will dissect the 2025 U.S. liquidity X-ray with you.
The article will go through four layers of the system, like a journey from arteries to the central nervous system of the money market:

1. Repo – Blood conduit of the system: Structure, mechanism, and why “secured lending” is the foundation of all of Wall Street.

2. SOFR – Heartbeat and blood pressure: When overnight funding costs rise faster than policy, and funding spreads become the ECG of the system.

3. Banks – Rusting organs: Why regional banks are “rust not bust”, cracking gradually rather than exploding, and how that slowly drains liquidity from the economy.

4. Fed and QT policy – The doctor must stop draining blood: Why the October 2025 FOMC meeting will be the moment the Fed is forced to stop QT, before the “patient” suffocates.

Behind the cold numbers is a bigger story: the post-QE era is hitting its own physical limits.

When monetization becomes a reflex, QT becomes the test drug, and the U.S. financial system — though still standing — has begun to gasp through the repo tube.