“This harmful cycle concentrated national wealth among those who already owned assets”: Bessent.
By Wolf Richter for WOLF STREET.
Secretary of the Treasury Scott Bessent came out today with an essay in the WSJ that blasted the Fed for its “extraordinary” and “nonstandard” monetary policies since 2008, such as QE; its “pursuit of the Wealth Effect”; its interventions that became a “de facto backstop for asset owners,” thereby concentrating “national wealth among those who already owned assets.” He blasted the Fed as bank regulator, citing the SVB collapse. He skewered the Fed for having caused home prices to soar, while “younger and less affluent households, shut out of ownership and hit hardest by inflation, missed out on appreciation.”
“By failing to deliver on its inflation mandate, the Fed allowed class and generational disparities to widen,” he wrote. And much more.
It is refreshing – and 17 years overdue – to see a Secretary of the Treasury, or any sitting government official, lambaste the Fed for its QE and asset-holder-bailout tools that kicked off in 2008, and it’s even more refreshing to see him list some of the horrendous effects the Fed’s tools and policies have had.
Here are some salient quotes from Bessent’s essay:
“The ‘extraordinary’ monetary-policy tools [QE and ZIRP] unleashed after the 2008 financial crisis have similarly transformed the Federal Reserve’s policy regime, with unpredictable consequences.”
“Successive interventions during and after the financial crisis of 2008 created what amounted to a de facto backstop for asset owners.
“This harmful cycle concentrated national wealth among those who already owned assets.”
OH, I so agree, and have said so many times. I have a special page for the Wealth Effect, citing among other notables, Yellen’s article on the benefits of the Wealth Effect, that she wrote in 2005 when she was still president of the San Francisco Fed, titled, “Housing Bubbles and Monetary Policy.”
And my page cites Fed Chair Bernanke’s 2010 editorial in the Washington Post, where he explained to the astonished American people that the Fed was using QE and ZIRP to create this wealth effect, whose explicit purpose was to make the wealthy even wealthier so that they feel more confident and spend a little more. The Wealth Effect was a central-bank horror story but it occurred in real life.
There is nothing more toxic on society, as far as central-bank policies is concerned, than the pursuit of the Wealth Effect. And it’s bipartisan: Yellen was appointed by a Democrat and Bernanke by a Republican.
And it is so refreshing to see a Secretary of the Treasury keelhauling the Fed for having made the Wealth Effect part of its policy.
And Bessent hammers on the effects of the Fed’s policies:
“Within the corporate sector, large firms thrived by locking in cheap debt, while smaller firms reliant on floating-rate loans were squeezed as rates rose.
“Homeowners saw their property values soar, largely insulated by fixed-rate mortgages. Meanwhile, younger and less affluent households, shut out of ownership and hit hardest by inflation, missed out on appreciation.”
“By failing to deliver on its inflation mandate, the Fed allowed class and generational disparities to widen. Its pursuit of a wealth effect to stimulate growth backfired.”
Oh, I so agree. Back in January 2022, I called this the Most Reckless Fed Ever, for having whipped inflation into a frenzy with ZIRP and mega-QE even as inflation had spiked to 7% and was heading higher.
So Bessent continues, quoting from a book: “‘Unprecedented inequality is clear proof that the wealth effect is all too effective for the wealthy, but an accelerant to economic hardship for everyone else,’ financial analyst Karen Petrou wrote in her book ‘Engine of Inequality’ (2021).”
“By extending its remit into areas traditionally reserved for fiscal authorities, the Fed has blurred the lines between monetary and fiscal policy.”
“The central bank’s balance-sheet policies directly influence which sectors receive capital, intervening in what should be the domain of markets and elected officials.”
“Entanglement with Treasury debt management creates the perception that monetary policy is being used to accommodate fiscal needs.”
“Expanded powers have fostered a culture in Washington that relies on the Fed to bail out the government after poor fiscal choices. Instead of accountability, presidents and Congress have expected intervention when their policies falter. This ‘only game in town’ dynamic has created perverse incentives for irresponsibility.”
Oh, I so agree. All-out interest rate repression through massive waves of QE have caused money to be essentially free, and when money is free, price no longer matters, and debt no longer matters either. And so now, the US is saddled with $37.4 trillion in federal government debt, up from $8.9 trillion in 2007, before QE and ZIRP started.
And Bessent continues:
“The 2023 failure of Silicon Valley Bank illustrates the dangers of combining supervision and monetary policy. The Fed now regulates, lends to and sets the profitability calculus for the banks it oversees, an unavoidable conflict that blurs accountability and jeopardizes independence.
“A more coherent framework would restore specialization: empowering the Federal Deposit Insurance Corp. [FDIC] and Office of the Comptroller of the Currency [OCC] to lead bank supervision, while leaving the Fed to macro surveillance, lender-of-last-resort liquidity and monetary policy.”
Oh, I so agree, and said so in an article at the time because it was painfully obvious even to me: The Fed Should Be Fired as Bank Regulator. Powell’s Discussion of Silicon Valley Bank & Regulatory Failure Shows Why. Bessent goes on:
“Heavy intervention has produced severe distributional outcomes [who gets rich, who pays for it], undermined credibility and threatened independence.”
“Looking ahead, the Fed must scale back the distortions it causes in the economy. Unconventional policies such as quantitative easing [QE] should be used only in true emergencies, in coordination with the rest of the federal government.”
This essay is an indictment of QE and of the Wealth Effect whose pursuit was powered by QE.
But somewhere along the line, after inflation had begun to rage and home prices were exploding, the Fed had a come-to-Jesus moment about QE, and then started unwinding it, and has continued to unwind it for over three years, by another $39 billion in August, having brought its balance sheet down by $2.36 trillion so far. I discussed the Fed’s latest balance sheet yesterday here.
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“There is nothing more toxic on society, as far as central-bank policies is concerned, than the pursuit of the Wealth Effect. ”
This is why Mandami is getting traction in NYC.
There are those who are trying to make ends meet…
next to those lighting 25$ cigars with lit hundred dollar bills
Loose money. Cantillion Effect.
Is the attitude not this….The Fed will make stocks go up.
They are down today? Don’t worry…..the fix is in. Tomorow will be up.
Hey, but didn’t Bernanke get a Nobel prize?
Almost beginning to like Bessent. He must have been reading my comments on the Fed since 2008!
The greatest theft of real wealth in American history.
[:-)
Mario Draghi, Bernanke’s successor, is also about to receive it. In Europe, politicians idolize him instead of forever banning him from touching monetary policy and finance.
Free money is the best money. Everyone wants it and adores it. And then, after using it for 15 years, we find out it’s highly toxic and the economy/country has cancer.
100 % agree
Now we know what at Nobel prize in economics is really worth.
Don’t fall for it! He says all this stuff, which is all a correct critique of the fed and their enormously reckless shenanigans. BUT, the whole point of this rant is to further weaken the federal reserve’s independence and make it even WORSE than before. This administration has already stated that they want to reduce rates by 300 bps. What’s THAT going to do to tackle inflation and help the wealth inequality divide? Just another grift.
I agree with your comment to the extent that it’s simple to critique the FED but it’s unclear what new policies at the FED will mean.
Better, worse or just as bad but in a different way ?
But you have to start somewhere.
“The changes Bessent is suggesting can’t be done without legislation. Katz said he thought it was very unlikely that Congress would act accordingly”
“very unlikely that Congress would act accordingly”
Just copy and paste that for almost everything about congress lol
In terms of monetary policies, nonsense. The Fed can focus on its classic monetary policies to achieve its mandate just fine. You don’t need Congress to not use QE and to not pursue the Wealth Effect.
In terms of bank regulation, moving regulatory oversight from the Fed back exclusively to the FDIC and the OCC, that would require Congress.
In the United Kingdom, the House of Lords endorsed the report: “Quantitative easing: a Dangerous Addiction?” A .pdf of this can be found on the web. A parallel of this report for our country looks like Congress would need to become involved, maybe the Congressional Budget Office. Currency manipulations have been the end of regimes and civilizations for thousands if years; even reaching biblical proportions in Jesus with the money changers working in a currency debasement environment.
FED has a dual mandate, inflation & employment. As I remember it, in the years just before COVID hit. The FED claimed that while both inflation and employment metrics were good, there was still relatively high unemployment among minority groups. These groups were catching up to “white” employment levels but still needed more time, so they kept interest rates low. This was the stated reason for holding down interest rates longer than many claimed necessary. I suspect that in the long run it will be determined that they did more harm than good.
The Fed’s legal mandate has three parts. They omit the part about moderate long term interest rates, but you can read it in the law itself (it’s very short).
Forgetting the need not moderate long term rates is how we got into this QE/ZIRP mess that Bessent dissected so effectively.
Bessent lists “moderate long-term rates” in his essay as one of the three. And he says those three are the only mandates the Fed has. And it needs to stay away from other stuff.
Bagehot
Indeed. Moderate long rates….moderate meaning per the dictionary as” not extreme”.
Well, the Fed drove long rates to ALL TIME LOWS, and that is extreme by any metric. But the powers that be loved it…..and nothing was said other than comments by posters on the internet.
We still feel the effects, especially in residential real estate in which people who bought and locked in ultra low rates can not afford to move and give up their cheap mortgages. This locks the market up and makes a most illiquid market more illiquid.
Of course you do.
🥱
Dismissive, yet nothing to add? Please elaborate on why someone shouldn’t agree so readers can assess the quality of your thinking.
Oh I so agree!!! Lol awesome 🐺
Wolf, possible typo? Billion in 2007?
“And so now, the US is saddled with $37.4 trillion in federal government debt, up from $8.9 billion in 2007…”
Thanks. Yes $8.9 billion was still a lot of money in 2007, but not that much!
Wolf,
Thank you for always keeping us very well informed.
I believe that is biggest issue we have now in Democracies.
Most of the times, if I don’t read news, I am uninformed and if I do then I am misinformed.
You keep it REAL.
Oh, I so agree with everything too. But does Scott bessent think his boss is Ron Paul or Donald Trump???
Physics has Rules.
Mathematics has Rules.
Money has Rules. Two of them. These Rules have been violated and abused. They seem to be being followed, somewhat, by the Fed these days. But a 50 basis-point drop in the Fed Funds rate, which may happen soon, will be pushing us down the slope of breaking them again.
As I bicycled past the Minneapolis Fed building at noon today, I wondered, what is about to happen? (No. No sighting of Neel.) And yes, the Mississippi River of debt was just to my east; running very deep as I rode north.
Rule Number 1) Money must have value. Capital can not be borrowed at no cost.
Rule Number 2) Future money must have more value than near-term money. Interest rates on a 20 year or 30 year Treasury Bond MUST be much higher than a 3 month or 6 month Treasury Bill. And yes, a Treasury Note should be in between these.
Market forces play a role in setting interest rates, of course. But The Fed needs to obey the Rules and maintain equilibrium.
Yes, there must be a time value of money.
If Bessent doesn’t flip flop on this I’ll be shocked.
For the government, emergency can mean anything.
Prairie Rider
I like the cut of your jib!
“My weekly Monday email of Farm News from Grand Forks had this item”……………”No. No sighting of Neel”………..”the Mississippi River of debt was just to my east; running very deep”
P.S. I’m a bit North of you up in Duluth.
“Rule Number 2) Future money must have more value than near-term money.”
————————————-
Is this true?
This hasn’t been true for the dollar in my lifetime.
Read a basic finance book to understand this concept. The “value” here is “yield.” A debt that is due in 30 years should yield more than a debt that is due in 6 months. An inverted yield curve, for example, violates this rule.
Prairie Rider
and the rules sometimes are applicable in more than one area
For instance, Newton’s Second Law…for every action there is an equal and opposite reaction. This certainly holds true for Monetary Policy….and the most often REACTION is a depreciation of the currency.
I don’t understand your Rule Number 2.
Future money will always have LESS value than current money unless there is deflation. You need $120-$150 now to buy what $100 bought just five years ago. Some goods and services have increased much more than that.
I am replying to my own reply. I misunderstood the comment.
Wouldn’t this be clearer? “Future INVESTED money must have more value than near term INVESTED money.”
@Wolf so what’s his angle? Everything he said is true, but why now? What the political incentive in coming out and saying this?
Also he’s not saying this unless this a narrative that Trump also wants put out there. Maybe I watched too much House of Cards a few years ago, but it feels strategic…
At least two of the top three Fed Chair candidates — Waller and Warsh — have a history of having come out against QE (Warsh) and slowing QT (Waller). Both want to sell the MBS and run down the balance sheet further, and replace long-term securities with T-bills. The narrative is that QE just to drive up asset prices is dead.
They may cut short term rates and continue QT, and shift to short-term T-bills.
I think you had an article or two talking about that move from long term securities to T bills and the motivation was to lower government’s interest payments IIRC. How does that fit with Bessent’s thoughts above? Is it just to appease Trump?
The Fed’s big balance sheet of long-term debt is a huge problem, and a massive money-loser, and carries enormous risks. The Fed has to remit all its profits to the Treasury, but the huge long-term portfolio has been losing lots of money. The Fed lost over $100 billion in 2024. So no remittances to the Treasury for years to come, which turns the Fed into a government deficit problem.
That’s nice.
Is his next op Ed going to blast Congress for their profligate spending? Or their refusal to deal with entitlements and balance the budget?
I’ll wait.
The Fed encouraged and enabled Congress’s profligate spending — that’s what he said. Without free money, it wouldn’t have happened.
Amen to that.
Congress spends and the Fed “enables” that excessive spending to be financed.
This will not end well.
B
If Bessent is successful in moving Treasury funding to the short end and working with the FED to reduce rates on the short end making debt funding easier, doesnt that just continue to encourage government spending ? 1% money is nearly free as far as a congress creature is concerned and even 2% money is as good as free to a politician whose horizon is the 4 or 6 years election cycle.
How would monetary policy change if inflation were not only measured in terms of consumer prices or personal consumption expenditure, but was broadened to include increases in asset prices as well?
Enormously. And assets should be counted as consumption too in my opinion. You buy them and pay for them. So they are part of the normal market. But the impact depends on the asset and the timing.
Let’s do some cherry picking on an asset that is frowned upon by wallstreet
If you bought gold as an asset anytime in 2021 you would have doubled the dollar value by now.
If you bought between 2013 en 2018 you would be looking at a tripling. And anytime before the GFC you would have done even better.
Compare this to your wage increase and see how you kept up.
You could do this for stocks as well, but not all stocks are appreciated equally. You should then use an index like the S&P as a proxy. But even then not all indexes are equal.
They keep assets out because that way you can be taxed on the capital’ gains’. Which in essence is a tax for trying to evade the depreciation of the currency.
BTW i like to look at the increase of the cost of my insurances as a measure of inflation. Because insurers are confronted with consumer prices at one side and exposed to assets in which they participate to hedge their risks and make a profit on the other side. All the costs and risks are accounted for in the premiums they charge.
Amen. The prices of stocks and other assets should be explicitly included in inflation indices.
But this is contrary to economic dogma.
Had an argument about this with a hot-shot economist of close acquaintance. I hold that buying a stock to get some financial return is no different from buying a truck. If the prices of trucks are included in inflation indices, so should the prices of stocks.
Does not appear to demand resumption of the $50B monthly Treasury debt held on the balance sheet though.
Debt rolloff…. I meant to say
1. QT was $39 billion in August.
2. He didn’t get into ANY dollar-type specifics.
Yeah, I do wonder what prompted this. Maybe Bessent is listening to outreach people working for the GOP who are finding that a lot of people who don’t have houses or other assets are unhappy?
It isn’t deep.
Trump is a real estate guy. He has, by selling the spoils of the office he holds, recapitalized his real estate empire to the tune of $5B. He is ready to utilize that new capital to expand into places he has had his eye on for years if not decades, but hasn’t been able to afford until now.
He can buy more house with lower rates, same as the peasant masses. Bessent is simply part of a multipronged pressure campaign to intimidate the Fed into dropping rates. Whether the Fed dropping short term rates will actually lead to lower mortgage rates is an open question. Last time it did not.
I’m not sure what Bessent is getting at, but this is not jawboning the Fed for lower rates at all, it’s decrying the Fed for interventions that resulted in lower rates and therefore, asset price inflation, from 2008 until 2023 when rates rose and QT accelerated. There is of course always a political purpose to statements from any cabinet secretary of any administration, but this statement on its face appears at cross purposes with the President’s desire for lower rates generally.
The entire message is “the Fed are a bunch of screw ups.” It doesn’t matter what the exact verbiage happens to be.
You are looking for consistency in messaging? From this administration? You will be disappointed.
The entirety of what this administration wants from the Fed is lower rates. Period. The only difference between individuals is what particular debt they are interested in lowering the cost of servicing.
Drg1234
You have not paid any attention. Yes, Bessent wants lower short-term rates. But that’s a classic tool of the Fed, and people might disagree where those policy rates should be, but agree that this is a classic function of the Fed.
But the entire editorial was about the OTHER tools of the Fed, particularly QE and bailouts.
Yeah I thought that too – I was wondering if it was trying to lay some ground work in terms of influencing public opinion for taking some power away from the fed which would align with Trump’s agenda.
It seemed counter to near term rate cuts depending on where the inflation print is next week.
Setting or influencing short-term policy rates is a classic Fed tool. People differ on where those short-term rates should be, but there is agreement that this is a tool that the Fed always has had and should use in a smart way.
The problem is QE and bailouts. Bessent is attacking the Fed for QE and bailouts — not short-term rates.
I 100% disagree. Trump is a lot of things, but he’s not stupid. He’s able to see what happened when rates went down, and the 10 year went up by that amount. Even if he isn’t an economic scientist, he has enough people around him that understand that this could happen again, especially if the Fed reduces rates too rapidly.
What he’s doing here is setting up Powell to be the fall guy. He likely knew that a slowing of economic activity (we’re still a way’s away from a recession though) was going to happen regardless. Part of that is due to the lag effect from increased rates. Part of it is due to the hangover from the COVID excess (a lot of demand was pulled forward). And part of it is due to a reduction in illegal immigration and federal spending to support it.
This way, he gets someone to point the finger at for the economic slowing of activity that was going to happen anyway. He then can be the “savior” who fixes Biden and Powell’s mistakes.
Believe me, he doesn’t actually want 1% rates, because he knows exactly what that will do to inflation and the bond market.
Yeah I’ve thought about this a lot. Trump is an entertainer. He’s also not stupid. To be a hero, you both need a crisis and a fall guy. He wants to be a hero. The greatest president that ever was and then pass things off to Vance in 4 years. So he needs to be a hero. ALSO nothing gives a president more power than a crisis.
Anyways TBD, not a conspiracy theorist, just anything politicians say to the public is PR. It’s hard to know the real intentions. But Trump does also know the public hates inflation, he won an election because of that.
MM1, exactly. If things continued humming along as they were under Biden, with strong economic growth but out of control inflation, and absurd government deficits, people would vote to try something new. He needs to fix the problem, or at least be perceived as fixing the problem (or as you call it, to be the hero).
He won the election for two reasons, high inflation and the uncontrolled flow of migrants at the Southern border. The cultural issues like transgender stuff was a very distant third, in my opinion.
The immigration problem he’s attempting to fix. All of his PR is to fix inflation, or at least be seen as doing so.
Everything he says is true but I’m skeptical that he actually cares.
If he did care, he would lobby Congress and the President to make changes in the Fed charter that would take away the Fed’s ability to pursue QE and strip the Fed of all ancillary regulatory duties in an effort to focus it’s work on short term interest rates and how they relate to employment and inflation. The Fed has many of the same problems as the rest of the administrative state, in that it pushes the boundary of poorly written statutes to usurp power during time of crisis for it’s own power and benefit. There is a need to drastically curtail the administrative state and shrink the purview of regulatory agencies back to what existed before the New Deal.
I agree with that. The Democrats have gone berserk over Trump’s taking advantage of ambiguous statutes (for tariffs, immigration, law & order, and all sorts of other things). But the fact is, the Democrats have availed themselves of those ambiguous statutes when they’ve been in office. Many of Biden’s actions regarding eviction moratoriums, student loan “relief” and others were predicated on similar types of statutes.
Congress deserves the blame here. You delegate authority because you don’t want to deal with it yourself, you lose the right to complain when the person to whom it’s delegated (the White House, the Fed, etc.) does something with it that you don’t like.
The job of the opposition party is to oppose, and do so loudly so voters can see who’s to blame for things they don’t like. Republicans did this very effectively over the past four years, the script has currently flipped. Eventually, what you get is a uniparty deal with only scant differences between them, both teams protecting the wealthy and feathering their own nests.
Are you going to blame yourself or your surgeon if he cuts out the wrong organ?
Let’s not forget the Yellen Put, Powell Put, and the (stock market) plunge protection team, which gave all the players in the casino free downside risk protection during QE. I think the Powell Put is still in place, if ever another severe downturn occurs.
Thank goodness for the wealth effect and rich people — they saved the economy after the 2008 financial crisis! /s
All that asset inflation is the least we could do to thank them! /s
We don’t even know if the Powell put is still in place. What matters is that investors, especially retail, believe that it is.
That’s enough to create a self-fulfilling prophecy.
Wolf,
I love the article.
36 trillion dollar question. What next? How we fix it and who is going to fix it?
Fixing it will take a long time, strong economic growth, moderate but higher than 2% inflation, a very edgy bond market that scares the bejesus out of Congress at least twice a week, and a pissed-off voting public.
All while the recipients enjoy their ill gotten gains, and the disaffected young spend their whole lives catching up.
I’m not sure if the inequity of that situation will play out over “a long time”
I know 1929 was a mess, but I assume it generated more equity in society?
Maybe that’s what the USA needs to give it growth for the decades ahead, everyone feeling they have a fairer stake in the economy?
Wolf
What do you think of the move from “stable prices” to the 2% target?
AND
What do you think “full employment” is? (unemployment percentage) Anything under 5% used to be considered “full” employment
Both have been “rearranged” over the years, and both IMO so as to promote lower interest rates. Good, bad, or indifferent?
Thanks
1. There were long periods (many decades) in the US with more (and often a lot more) inflation than now. And back then, there wasn’t a 2% target. So it’s irrelevant for actual inflation. It’s just a guidepost for the Fed. The Fed has never had a 0% target, and implying so is BS.
2. Pretty much everyone agrees that the US is at “full employment” right now, at 4.3%. What you don’t want is for the rate to suddenly shoot up to 4.6% 4.9% 5.5% 6.1% 7.8%…. And that’s exactly how it goes during a recession, check out the last chart in my jobs report article. So when the rate starts moving higher quickly, it means that the labor market can no longer absorb the increase in the labor force. And if that is combined with net job losses, the labor market is in trouble. But we haven’t seen neither one of them yet.
So impossible circumstances, in other words.
OK, no sarc. I’m puzzled. If I read it right, he’s saying the Fed recklessly fed inflation with over stimulus. But doesn’t his boss want the Fed to stimulate again with lower rates? Is Bessent calling for the Fed to tighten?
Re-read the article. You didn’t understand a thing. You missed everything. Willfully.
Setting or influencing short-term policy rates is a classic Fed tool. People differ on where those short-term rates should be, but there is agreement that this is a tool that the Fed always has had and should use in a smart way.
The problem is QE and bailouts. Bessent is attacking the Fed for QE and bailouts — not short-term rates.
I know what you wrote, but somehow I read “Housing Babbles and Monetary Policy.”
In 2008 the Fed legally raided (short selling) wealthy people’s bank accounts to save Citi, JP Morgan and other primary banks. Thereafter the Fed lifted the injured RE market. In 2020/21, when the economy was comatose, the Fed short wealthy people’s bank accounts for an IOU and transferred $3,000 to the poor and $10,000 to shingle mums, under Trump.
Gee, no trickle down from the wealth effect. As if the wealthy give a rat’s azs about the non-wealthy. Hint: they don’t. They just want us to buy the crap they make money on, work for the lowest wage possible, and not revolt. One of the unwritten mandates of the Fed (who are themselves a group of wealthy individuals) is to promote policies which siphon as much money as possible from the workers into the pockets of the wealthy. Marx was pretty much right about how capitalism works. Unfortunately his solution, communism and its bastard offspring socialism, turned out to be a lot worse than capitalism.
The Silicon Valley Bank fiasco was amusing, in that we were led to believe that there was a $250,000 limit on FDIC insurance. That limit was removed to accommodate the wealthy account holders (mainly tech bros.) at SVB, using “systemic risk concerns” as an excuse. A good example of moral hazard.
So we enjoyed Bessant’s critique of the Fed. What is he going to do about it? Will he push for lower rates as his master wishes, help fill the Fed with Trump lapdogs, and watch inflation soar?
Setting or influencing short-term policy rates is a classic Fed tool. People differ on where those short-term rates should be, but there is agreement that this is a tool that the Fed always has and should use in a smart way.
The problem is QE and bailouts. Bessent is attacking the Fed for QE and bailouts — not short-term rates.
I am the biggest opponent of bailouts that you’ll ever seen. And I don’t like how the $250,000 limit that was written into statute was ignored. That said, I don’t think there should be a limit at all, and Congress should remove it.
Ensuring that banks are solvent should be up to the regulators, not depositors. Individuals and companies should be able to stash cash in a bank and not have to worry about it.
This is what they are doing:
“The reduction in financial enforcement reflects the administration’s weakening supervision of financial institutions by rolling back parts of the 2010 Dodd-Frank Act and dismantling the Consumer Financial Protection Bureau”
If Bessent gets appointed as Chair, and the S hits the fan with the economy, it will be interesting to see if he acts contrary to this point of view. Reality is reality.
You people are nuts.
Blah blah blah
So we start counterfeiting again. When we’re already below 6% for 30 year mortgages.
Over the last 53 years …. US 30 year mortgages have averaged 7.71%.
Oh man massive inflation here we come. As if the rich don’t benefit most from it.
Has there ever been a good objective analysis/modeling published of where the dominos would have stopped falling without the inflation causing monetary moves? If so please reference. Was a two year inflationary period the better alternative to that?
I read Bessent‘s essay. And I agree with everything he said. But I seriously doubt the trump administration will do anything more than pay lip service to sound monetary policy. I believe that If a recession shows up, trump will be the loudest voice in the room commanding the fed to act immediately, including qe.
Howdy Folks. This is how Govern ment fools you. Bessent will support the Presidents policy on interest rate reductions. Govern ment parades a so called CONservative around to fool you. Greenspan was supposed to love a free market too. Reagan was supposed to be a fiscal CONservative also.
Bessant might be right on this issue but he has his own faults. Prior to the election he blasted Yellen for shifting to shorter duration treasury issuance. Then once he is appointed to Treasury secretary he doubles down on the same policy he just lambasted moments earlier :-/
Good lordy. The period for which he criticized Yellen was 2020 and 2021 and the 10-year yield was between 0.5% and 1.5% (did you already forget????), that’s when she should have shifted to selling more long-term debt to lock in the low cost. Now, long-term yields are 4-5%, so selling long-term debt now locks in the high costs. And he expects short-term yields come down through rate cuts, so it makes sense from an expense point of view to shift to T-bills now to take pressure off already high long-term yields, and as rates get cut, pay less in short-term interest rates even if long-term rates go higher.
Yes, if short term rates do decline the Treasury will use short term financing, however, long term rates will likely increase and we may actually get back to a classical interest rate curve that reflects the actual inflation in the economy.
PS:
good article, thanks for writing it.
Succinct summation of the last 17 years.
Well done.
I agree with him about the Fed, but wish he had pushed a little harder about the role of a screwed up fiscal policy and the responsibility of Congress to manage that. One might argue that the Fed went as far as it did as often as it did because Congress just sat on its ass. I’ve often wondered what things might have been like if, when Continental Illinois went belly up in the early 1980s, we had just let it go. A big mess- yes but perhaps a little moral hazard early on would have changed how actions by the Fed and Congress evolved.
Great call-and-response song by Wolf. Reminds me of old folk songs about bad times, with long verses and repeated refrains.
Any bets on how many days before Trump fires Bessent?
Something like 75% of tax collections are automated (not talking about overdue bills) We don’t need a ton of agents for this.