Major Market Intervention: Why Did Treasury Just Double Bond Buybacks? | Danielle DiMartino Booth

**David Lin** (0:00)
On Wednesday, August 19th, the treasury doubled its long end buybacks to at least $4 billion per operation. Previously, it was at $2 billion. In the 30 year, yield fell nine points off a 19 year high.
Yes, yields dropped sharply on the announcement. Gold went up 3%, Bitcoin went up 5.5%, and the stock market was slightly in the green as well. So huge rally in risk assets on this news. The dollar went down 80 basis points, the X Y went down 80 basis points. And this comes at the same time as the release of the Fed Minutes, which we'll go over with our next guest, Danielle DiMartino Booth, CEO of QI Research. Welcome back to the show, Danielle. Very interesting day.

**Danielle DiMartino Booth** (0:43)
Much more interesting day than what we thought it was gonna be. We thought it was just gonna be a slow summer day with the Fed Minutes as the highlights with nothing on the economic calendar. Little did we know.

**David Lin** (0:52)
Yeah, little did we. Well, actually, you kind of did know. I was looking at some of the media you've done recently, the last couple of days, and I think you talked about it at one point. Yeah, yesterday. Why doesn't Besson just buy back more treasuries? A day in advance.
And there you have it. Why did you have that thought to begin with?

**Danielle DiMartino Booth** (1:12)
Well, because he has the power to affect a fairly market at the long end of the curve that really does not have that much outstanding. And if he was so gung ho about helping intervene in Japan, well, then for heaven's sake, where was he when it came to the United States? We're clearly in a time of war, if not economic warfare. And you have small bankruptcies up 24% year over year. Other reports have shown that personal bankruptcies are up 50% from where they were before the pandemic started. So it's clear that there are certain areas of the economy that are interest rate sensitive, that individuals who don't have easy access to very cheap credit have been suffering.
And to say nothing of the effect that the high rates are having in other risky asset markets. So Bessent certainly had the opportunity, and that was why I said yesterday, where is Scott Bessent?

**David Lin** (2:20)
So let's go over what exactly happened. A lot of people this morning were tweeting and posting on social media, look, more money printing. Now you were quick to respond to such, I don't want to call them allegations, but theories on your own ex.
This is not QI because treasury cannot create reserves. True. Not yield curve control because it has no explicit yield ceiling and it can't evolve into operation twist. If the 20 and 30 year debt removed in short maturities issued, private investors exchange long duration risk for short duration government liabilities.
So, let's just recap. What exactly is this Treasury buyback program, and how would you classify it?

**Danielle DiMartino Booth** (3:01)
Well, I think the closest historical corollary would be operation twist. Of course, the Fed has been involved in the past with operation twist episodes, but in the current case, it is the Treasury taking the reins. This is a very controversial thing to do, to be intervening in our Treasury market.
On the other hand, I'd rather have the Treasury taking a direct role, as opposed to leaving the onus on the Federal Reserve one day to step in with quantitative easing. I would rather have it be in the hands of the Treasury. This will probably anger a lot of risky asset investors who, day in, day out, they're doing the basis trade, and hedge funds have record positions in the US Treasury market right now. This is probably a huge surprise to them that Besant came in to do this. But there's been rumblings about taking long maturity, taking duration out of the Treasury market, and shifting that into Treasury bills for some time now. We've known that Besant has the power and the authority to move forward with this. In fact, it was his predecessor, Janet Yellen, who started out with the smaller program, but this has now been doubled up to $4 billion a month.

**David Lin** (4:20)
This seems... And again, this is just me analyzing what's going on in the service, if you can call this analysis. But this seems to me quite coordinated. On the one hand, we'll go over the Fed minutes in more detail today with the release this morning. On the one hand, Kevin Warsh was pressed many times about why he didn't raise, or why the FOMC didn't raise interest rates, the Fed funds rate at the last meeting. There were three descents, as you know. Several other governors indicated that the rates should be higher.