Treasury Secretary Scott Bessent said the post-2008 Fed created “a de facto backstop for asset owners.”
Fed’s role “take away the punchbowl just as the party gets going”
William McChesney Martin, Federal Reserve chair from 1951 to 1970, famously said
No one wants to be a party pooper. It drives away friends and makes you generally unpopular. But if you are a monetary policymaker, ending the party before it gets too wild is quite literally your job.
His willingness to do it annoyed Richard Nixon, leading to Martin’s replacement with the more economically flexible Arthur Burns.
I suspect, as we will discuss today, that inflation never really went away; it just changed form. “Innovative” monetary policies like QE raised asset prices while leaving consumer prices relatively (though not completely) stable.
Of course, we love it when rising asset prices vindicate our choices
The Fed’s failures came to mind last weekend when I read a Wall Street Journal commentary by Treasury Secretary Scott Bessent.
Mr. Bessent is U.S. Treasury secretary. A longer version of this article appears in the forthcoming issue of the International Economy magazine.
The International Economy Magazine is a quarterly publication that provides information on global financial policy, trends in economics, and international trade. The magazine is primarily marketed toward elite financial officers all around the world.
https://www.international-economy.com/
While I disagree with Bessent on tariffs and protectionism plus some other subjects, I think he describes this problem exceptionally well.
Quoting
“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. 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.”
Confusion in 2008‒2010 while the game was still underway. Rate cuts weren’t helping, and the Fed came under intense pressure to “do something.”
The plan—their “something”—that finally emerged was “quantitative easing,” in which the Fed used its excess reserves to buy Treasury and mortgage-backed securities.
This allowed it to influence the longer end of the yield curve, which in theory should have stimulated economic growth. It didn’t, so the answer was more QE, then yet more QE.
John Mauldin September 12, 2025
https://www.mauldineconomics.com/frontlinethoughts/modern-day-punchbowls
Centralbankerna tryckte pengar som galna
https://englundmacro.blogspot.com/2025/08/centralbankerna-tryckte-pengar-som-galna.html
RE: Antingen var de inkompetenta, eller, mer troligt, skräckslagna.
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