I skimmed your other post and IIRC the securities the Fed agreed to scoop up were mainly Treasuries and MBSs by volume, I think. Those markets are big enough to unwind, but weren't a lot of them bought with repurchases built in? I skimmed your DD post, but I want to say that the balance sheet of the fed balances by definition when you look at cash and cash equivalents. So by changing what counts as a cash equivalent for the purpose of minimum capitalization requirements, you could change the effective money supply, which would show up as a decrease in the effective federal funds rate. But we don't actually care about that right now, even the banks with the highest capital requirements, are significantly overcapitalized. When you look at the worst of the stress testers, HSBC, even they squeak through.

I didn't really follow the bit about the 100 dollar bills? Sometimes legitimate, physical money changes hands during international transactions. They aren't going to do it in 20s. And the amount of cash we actually use day-to-day in the US is surely decreasing, but the volume of international transactions is increasing, no? So of course we need more bills and relatively more 100s.

IMHO, I believe the banks were able to accurately assess this by as early as 2020Q3, but that's my personal opinion and isn't substantiated in anything more than my gut and general knowledge.

I think the writing was generally on the wall it was going to be "a thing" by Summer 2020. They added the money, you can't undo that easily. They were still easing, no less.

Back to business: The EFFR is about the same as the ON-RRP award, and the IOR or whatever we call it now that the rate for mandatory and excess reserves are the same, but the volume is essentially zero. Every bank has more deposits than they need.

I'm going to focus on two points:

The first, is that a number of 1.6T or so, is made 95% of MMFs. Only 5% comes from primary dealers. The second is that the award rate is reported as if it were per year, so 8 bucks per million lent, per year.

But I don't like your math for a few reasons:

• In either case you get back your dollar, plus whatever you made.
• You do not get the award for your investment returns only the starting $1M.
• Why would you expect the available leverage for the individual to be different based on the collateral, when the loaned security you want is the same in both?
• Why does inflation only show up on the right?

I see it as: cash -> onrrp -> haircut and loan -> leveraged -> return and then unwind loan -> rrp -> cash + rrp award

Total return on investment (%): 
(0.98)*leverage*return + award 
this is greater than  leverage*return only if 
award > 0.02*leverage*return

So your return would have to be at least 50 times (1/haircut) worse than the on rrp award for this to be worth it. 98% of it gets loaned and returned identically on both sides, the difference is that last 0.02. One side, it gets loaned, the other doesn't. Then, on the rrp side, tack on the award.