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Chartbook 472 Neo-Burgundian technocracy: Ernst Jünger’s reckoning with nihilism.

Adam Tooze — Sat, 29 Aug 2026 19:51:20 GMT

As I was contemplating the lily, a thin blue ray of light flashed on the vineyard road below and groped its way over the slopes. Then I heard an automobile stop at the main gate. Although we were not expecting guests, I went down to the gate … and there I saw a powerful car, humming softly like the almost imperceptible whirring of an insect. It bore the colors reserved to the high nobility of New Burgundy, and before it stood two men, one of whom made the sign with which Mauretanians identify themselves in the dark. He told me his name, Braquemart, one I recalled, and introduced the other as the young Prince of Sunmyra, a lord of New Burgundian lineage.

This is how Ernst Jünger’s 1939 classic On The Marble Cliffs reaches its turning point.

In the 1920s Ernst Jünger emerged as one of Germany’s most influential writers of World War I and its aftermath. A holder of Germany’s highest decoration for valour - Pour le Mérite - Jünger’s Storm of Steel (1920) rendered the experience of trench warfare in both vivid and at times hallucinatory terms. In the 1920s and 1930s Jünger made a name for himself as a nationalist prophet of technological modernity, advocating a wholehearted, nihilistic embrace of modern power beyond any of the claims of conventional, 19th-century norms. Writings on total mobilization (1930) and “The Worker” (1932) were the pinnacle of this phase.

Compared to these urgent, highly contemporary diagnoses of “modern times”, On The Marble Cliffs, published in 1939 just before the outbreak of World War II, marks a break. Though many more intellectual Nazis no doubt saw themselves as translating Jünger’s vision into action, Jünger himself was not at ease in the Third Reich. Unlike figures such as Heidegger and Schmitt, with whom he had been familiar in the early 1930s, Jünger sought no close association with the regime. He traveled, wrote unpublished manuscripts and withdrew to the provincial idyll of Überlingen on Lake Constance. It was in this period, that he conceived On the Marble Cliffs, a fantasy, set not so much within the present day, as in an imagined, composite moment in history.

Jünger conjures a world of high-powered cars with powerful lights, which make evening visits to vineyard retreats. This could be a scene in a French movie or novel at any point from the 1910s onwards.

But the drivers of the car don’t themselves belong in the 20th century. They are members of a hierarchical aristocratic order, with its own distinctive livery. They recognize each other by the gestures of their warrior clan, the Mauretanians. Even their names carry the flavor of the French middle ages. Braquemart is the name of a short sword.

Their livery is that of “New Burgundy”. Of course, there is no such thing. But amongst the cognoscenti, the lost principality of Burgundy is a byword for chivalric honor and medieval chic.

So this is a world both futuristic and medieval at the same time. It is a strange cultural cocktail, the past and the future in one. A strange cocktail, perhaps, but hardly unfamiliar. The feudal-sci-fi mix will inspire science-fiction for the rest of the 20th century. The AI algo is well primed.

In Jünger’s book we are not in a galaxy far, far away, but in a terrestial geography that seems modeled on the picturesque countryside around Lake Constance. In Jünger’s fantasy, Burgundy lies to the West, the realm of the horrible Oberförster, the forests, are to the North, the Alps to the South.

So, why are these two warlike New Burgundians paying an evening visit to our narrator?

Braquemart and the Prince of Sunmyra are on a mission. They are plotting a strike against the Oberförster (Chief Forester), the shadowy force threatening this idyllic world with overthrow and disaster. The grisly fiasco of that mission will produce the terrible climax of Jünger’s short book.

Here is a short description from an excellent, near-contemporary review by William H. Rey.

The novel Auf den Marmorklippen is the story of two brothers who witness the collapse of a civilization brought about by a barbaric demon of the forests, the Oberförster (Chief Forester). In their struggle for the old order they find allies in a Christian priest, Pater Lampros, and the noble prince Sunmyra, both of whom sacrifice themselves when the catastrophe occurs: Lampros meets death in the flames of his monastery; Sunmyra is tortured and lulled by the subhuman creatures of the Chief Forester after an unsuccessful attempt to break his power. This attempt was supported by Braquemart who is, however, not a defender of the old order but rather a modem rival of the Chief Forester in the struggle for power. In the end, the whole civilized area is destroyed and conquered by the Chief Forester, and the two brothers have to leave the country.

One crude reading of Auf den Marmorklippen is that it is an allegory on Hitler’s dictatorship. The Oberförster is the Führer, or perhaps his #2, Hermann Goering. The Prince of Sunmyra is a member of Germany’s aristocratic resistance, the men who met their fate in July 1944.

But this seems both simplistic and implausible. The Oberförster and the Führer may both be evil, but otherwise they have little in common. The Oberförster’s disastrous project consists above all in the unleashing of wild, destructive animal violence. That was not Hitler’s vision. Stalin was a greater sadist than Hitler, but he too hardly fits the image of primal violence evoked by the Oberförster.

Jünger knows a thing or two about violence. His battle scenes are vivid, at times bordering on the pornographic. To add to the incongruity of timescapes, the most violent scenes feature war dogs - one strain of which, Jünger goes out of his way to tell us - were bred from the notorious slave-hunting mastiffs of Cuba.

Rather than focusing on specifically 20th-century horror, Jünger seems determined to evoke an entire history of violence. In the battle between the narrators, their allies and the forces of the Oberförster, amidst the howling and baying of the dogs there are crossbows, medieval siege weapons, the flaying of corpses, and memories of unnamed “machines of destruction” operated by champagne-swilling warriors (sic). It is all a little reminiscent of the legendary Roy Batty monologue in Ridley Scott’s Bladerunner.

I’ve seen things you people wouldn’t believe. Attack ships on fire off the shoulder of Orion. I watched C-beams glitter in the dark near the Tannhäuser Gate. All those moments will be lost in time, like tears in rain. Time to die.

It would be easy to dismiss Jünger’s novella as little more than violent pastiche, were it not for the fact that it serves as a vehicle for a quite extraordinary psychogram of the modern, warrior technician, the violent visionary, the nihilist captain of power.

The crucial figure here is not the narrator, who is trying to overcome his own violent past by turning to religion and natural history. Nor is it Prince Sunmyra - a self-sacrificial aristocrat who chooses transcendental sacrifice. The key figure, is Braquemart, the Mauritanian warrior and associate of the Prince of Sunmyra. In this short novel Braquemart is the only character described with real psychological depth and he is a figure full of ambiguity. Here is Jünger’s description:

We knew Braquemart from earlier days (the narrator tells us, AT) but had only ever seen him briefly, because he was often traveling. He was a short, dark, gaunt fellow whom we found to be cut from a rather coarse cloth but, like all Mauretanians, he did not lack wit. He was one of those we jokingly called “tiger hunters” because we often met them embarked on some exotic adventure. He sought danger the way others climb richly crevassed massifs for sport: he despised the plains. Stronghearted, he did not shy away from obstacles; unfortunately, however, this virtue was paired with contempt. Like all zealots of power and supremacy, his wildest dreams were reserved to utopian realms. He believed there had always been two races on this earth—masters and slaves—and that over the course of time some interbreeding had occurred. In this regard, he was a disciple of old Petardier and, like the latter, called for them to be separated again. Like every crude theoretician, he fed on those sciences of the moment and was particularly occupied with archeology. He was not nuanced enough to suspect that our spades infallibly uncover the very evidence we already have in mind, and like many before him, he had in this way discovered the first cradle of the human race. We were present at the assembly when he reported on his excavations, and we heard how he had come upon a strange tableland in some distant desert. Tall columns of porphyry rose from the vast plain—they had withstood the weather’s onslaughts and stood like bastions or rocky islands. Braquemart had scaled these columns and on their high plateaus he had found the ruins of princely palaces and temples of the sun he dated to prehistoric times. After he had described their dimensions and characteristics, he evoked a picture of the land. He portrayed lush, green prairies settled by herders and farmers with their flocks as far as the eye could see and, above them … He set ships with purple decks sailing down a river that had long since run dry; we could see the hundred oars dip into the water with insect-like regularity and hear the clash of cymbals and the crack of the whip that lashed the ill-fated galley slaves. These images were fitting for Braquemart. He was of that breed of men who dream concretely, a very dangerous sort.

Given Jünger’s own proclivities - he was, indeed, a man who “dreamed concretely” - this is painfully close to the bone. And Jünger does not flinch from the obvious question:

It may seem strange that Braquemart would want to oppose the Head Forester in this conflict even though many of their thoughts and actions were aligned. But we often make the mistake of conflating a similarity of means with a similarity of goals and a unity of motivations driving them. The difference was that the Head Forester intended to populate the Marina (the idyllic urban civilization by the side of the lake) with wild beasts while Braquemart saw it as a land that would furnish slaves and captive armies. It was, fundamentally, an internal conflict among the Mauretanians, which is not feasible to elucidate here. Suffice it to say that there is a profound difference between fully formed nihilism and unchecked anarchy. The outcome of the struggle will determine whether human settlements will become wasteland or virgin forest.

This should be enough to exclude any reading that aligns the Head Forester with either Hitler or Stalin. An anarchy of wild beasts in a virgin forest was neither of their ideals. They were closer, in fact, to Braquemart and so were many others of their generation. And this, surely, is Jünger’s point:

With regard to Braquemart, he was marked by all the traits of full-fledged nihilism. His was a cold, rootless intelligence with a penchant for utopias. He, like all his kind, saw life as the workings of a timepiece and so in his eyes violence and terror were simply the wheels that drive life’s clock. At the same time, he indulged in the idea of a second, artificial nature and became intoxicated by scents of man-made flowers and the pleasures of a simulated sensuality. In his heart, creation had been suffocated and reconstructed like the mechanism of a toy. Frost flowers bloomed on his forehead. On seeing him, one inevitably thought of his master’s profound saying: “The desert grows—woe to him who carries deserts within!” (The master in question is Nietzsche’s Zarathustra).

And Jünger does not stop there. He takes us closer and closer. He allows us to “feel” the man.

Nevertheless, we still felt some sympathy for Braquemart—not so much because he was fearless, for the closer to stone a man is, the less credit he deserves for bravery. Rather, we were drawn by a subtle suffering—the bitterness of a man who had lost all hope of salvation. For this he sought vengeance on the world, the way a child destroys a bed of flowers in futile rage. He did not spare himself and penetrated the labyrinths of terror with cold audacity. Similarly, when we lose the sense of our fatherland, we set out in search of distant worlds filled with adventure. Braquemart modeled his thinking on life and insisted that ideas be armed, tooth and claw. Yet his theories were like distillations without any real vitality; they lacked the delicious element of lavishness that gives any dish its flavor. His projects all suffered from aridity even though not a single flaw could be found in his logic; so a bell’s sonority is sapped by an invisible fault. This was due to the fact that for him, power was expressed too much in thought and not enough in grandezza, or in innate disinvolture. In this respect, he could not match the Head Forester, who wore his power like an old hunting jacket that fit more comfortably the more it was soaked with dirt and blood.

The recondite vocabulary is one of the ways in which Jünger distances us from the present and composes his historical pastiche. In case you were wondering, “disinvolture” derives from the French désinvolture and Italian disinvoltura. It is a noun that means a casual, free, and unconstrained manner, sometimes bordering on flippancy or offhandedness, in other words an attitude of aristocratic ease. By the late 1930s it had emerged as one of Jünger’s personal ideals.

For all the historical drapery, it is here, in this description of Braquemart that Jünger breaks cover. “Braquemart modeled his thinking on life and insisted that ideas be armed, tooth and claw.” This is a portrait of the character of power that goes beyond cliché, whether that be Max Weber’s “iron cage", or the banality of “seeing like a state”.

Ultimately, it seems obvious that Jünger is writing about himself. If so, this penetrating characterization of the nihilism of power, marks a significant waystone in his intellectua development. The Jünger of World War I and its long aftermath, was locked in the persona of Braquemart. By the late 1930s, in Auf den Marmorklippen Jünger is trying to imagine an escape.

Having fallen into the hands of the Oberförster and his grisly crew, Braquemart chooses suicide. The story is carried forward by the narrator and his brother. They heed the call of duty and follow Braquemart and the Prince into battle. Against the bloodthirsty violence of the Oberförster’s demon dogs, they too go down to defeat. But for Jünger this is not the end of the story. As William H. Rey remarks:

… the attitude of the narrator and his brother is determined by the realization that the powers of life do not represent the only, and certainly not the highest, level of reality. Within the elementary abundance of nature they have discovered a spiritual structure which endows the chaos of boundless vitality with law and measure. It is quite significant that Linnaeus (the 18th-century naturalist), ‘who with the Marshall’s rod of the word steps into chaos of animal and plant life’ appears here as a venerated guide and model. Under his influence the brothers see in the garden an ideal combination of spontaneous vitality and spiritual order. In the delicate forms of their flowers - Remember where we started: “As I was contemplating the lily, a thin blue ray of light flashed on the vineyard road below” (AT) - they find both the sensual beauty and the divine secret of life. This metaphysical insight requires a corresponding ethic.”

Auf den Marmorklippen is a document of this realization. The Nietzschean embrace of violent energy is revealed as a lethal threat to any possibility of a good life. The answer to that threat is a “humanistic ideal of a synthesis between freedom and responsibility, the powers of the earth and of the spirit.”

However, Jünger doesn’t simply relapse into an ethical voluntarism. The power of the Oberförster cannot be denied and his violent and destructive triumph is no accident. The rise of nihilism has historical conditions:

The rise of nihilism is possible only through a loss of faith, a reduction of the religious substance as it occurred in modern Europe under the influence of rationalistic and scientific criticism. … neither the Chief Forester nor Braquemart are the real causes of the cultural crisis: both of them exploit only an existing situation brought about by the decay of moral and spiritual values. If this is true, then the enemies of civilization cannot be fought effectively either in the political or in the military field. … neither liberalism (which he regards as the historical preparation of nihilism) nor conservatism (which has lost its social and moral foundations) can be the remedy for the nihilistic crisis. Since force can create only terror but not belief, the best weapon against nihilism is the change of the human heart

What saves Jünger from despair, is not just the hope of a spiritual reawakening, therefore, but a reimagining of history. Crucially, Jünger, perhaps under the influence of Sengler, comes to see history as cycle. As Rey explains:

Jünger believes that the process of cultural decay is a historical necessity that occurs periodically. This cyclic concept of history results in a strange mixture of resignation and hope. Resignation - because the crisis of civilization is inevitable. Hope - because it is only one phase in the swinging of the historical pendulum and will be followed by a period of regeneration. … History, like nature, belongs now to the realm of appearance. The divine order cannot be affected, therefore, by historical repercussions; it will always re-emerge out of the vortex of catastrophe. This means that the victory of the Oberförster is only an historical episode and not a metaphysical decision. … In the midst of catastrophe and panic the Christian community at the Marina turns to God for help, and Jünger gives us reason to believe that their prayers will not be in vain. Their reborn faith appears as the germ-cell of a new civilization based on the permanent order of things.

Rey’s analysis of Jünger’s train of thought is both illuminating and by the same token unsatisfying. Ultimately, Auf den Marmorklippen, beautiful though it may be at times, is an exercise in escapism. But what remains truly impressive is Jünger’s portrait of the forces that he is seeking to escape. What we should read and reread is his warning against the crude zealots of power, the makers of self-serving archaeologies and arid utopias, comforting their subtle suffering with the intoxicating scent of man-made flowers.

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Tops Links 1208 Profit boom. Political fragility. The shadow surge in deportations & ultra-long horizontal wells.

Adam Tooze — Sat, 29 Aug 2026 11:42:49 GMT

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Chartbook 471 Still Safe? Cognitive dissonance in the Treasury market.

Adam Tooze — Thu, 27 Aug 2026 15:12:57 GMT

US financial hegemony is anchored not so much on the dollar as a currency as on the attraction of dollar-denominated financial assets.

As Robert Armstrong put it a few days ago:

When we talk about American financial hegemony, we almost always talk about the US dollar. The resilience of the dollar system is the subject of continuous speculation. But there is a better way to frame the issue: the US’s role as the world’s indispensable investment destination. The world’s savings are pulled to the US as if by economic gravity, crowding into American stocks and bonds and providing its economy with a key support. If the gravity should weaken, the consequences would be large.

As Armstrong goes on to point out, US equities (risky assets) and US Treasuries (supposedly safe assets) have hitherto formed a complimentary sandwich.

Huge deficits in the public sector shovel surpluses inot the private sectoral accounts. Equities ride high. In risk-on phases equities dominated. At times of stress, conversely, investors shifted not out of the dollar and dollar-assets but from equities to Treasuries.

This inverse correlation is not a natural feature of the world. It is the result of a series of deeply held expectations. As Wei Li global chief investment strategies for BlackRock has pointed out, in the current moment, the relationship has broken down.

Bond yields have risen sharply, with 30-year Treasury yields reaching a 19-year high above 5.30 per cent this month. Yet equity markets have kept marching higher, with the S&P 500 only just below record highs hit earlier this month. Traditionally, higher government bond yields should weigh on equities by increasing the cost of capital and raising the rates that are used to discount future earnings in valuations. Equally, when equity markets came under pressure, investors expected bond yields to fall as government bonds rallied. Recently, both relationships have become less reliable.

What is going on?

One answer is to point to the relentless boosterism around tech stocks, which is wrenching the market’s sense of reality out of joint. But there is also reason to think that something profound has shifted on the side of Treasuries, the supposedly safe anchor of the dollar system.

Thanks to FTAV’s excellent further reading links I came across a powerful paper by Stanford Finance Professor Hanno Lustig for the Aspen Economic Strategy Group, that provides a compelling narrative of the progressive erosion of the status of US Treasuries as safe assets. In what follows I will quote from the paper with some explanatory commentary.

For decades, the US has been the world’s safe-asset provider, and the dollar has been the world’s reserve currency. As a result, global investors were willing to pay a premium for US Treasurys. US taxpayers benefited because this premium lowered the federal government’s cost of funding. That premium has been eroded in the last few years. Pre-2020, the safe-asset model was a good fit: Treasurys traded at a premium to close substitutes, hedged equity risk, and rallied during stress episodes. Post-2020 each of these predictions has failed.

The most basic feature of a safe asset is presumably that investors are willing to pay more for it than they are for less safe alternatives. In the case of bonds, this implies lower yields. As Lustig point out, and is abdundantly evident from even a casual inspection of bond yields, this no longer holds.

US Treasurys are no longer expensive compared to close substitutes like German sovereign bonds or AAA US corporate bonds, especially at longer maturities.

As the bottom panel shows, not only do Treasurys no longer command a premium, they actually trade at a discount to many G10 sovereigns.

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Furthermore, as asset prices fluctuate, Treasurys no longer function as a hedge:

the US stock–bond correlation turned positive in 2020. US Treasury allocations no longer hedge the equity risk in an investor’s portfolio.

And this then has implications for investor behavior. Whereas the inverse correlation was formerly reinforced by investor behavior - at times of stress they fled INTO not OUT of US bonds. Now, this no longer holds.

there is increasing evidence that investors no longer flee to the safety of Treasurys when volatility spikes in financial markets. An example of this was the arrival of COVID-19 in March 2020, when the 10-year Treasury yield spiked by 68 basis points in just eight trading days between March 9 and March 18.

As Lustig spells out, to make the case for a shift in the safe asset status of Treasuries, it is not enough to show that the correlation has shifted. After all, if the type of shock that is hitting the economy hits both bonds and equities, then the correlation will change. So, to uphold his argument, Lustig then offers two more technical arguments.

In the framework of Campbell, Sunderam, and Viceira (2017) and Campbell, Pflueger, and Viceira (2020), the sign of the stock–bond correlation is determined by the mix of shocks hitting the economy. Supply shocks move stocks and bonds in the same direction; demand shocks move them in opposite directions. The post-2021 period was unusually supply-shock heavy: pandemic supply chains, energy, tariffs. The correlation flip may be a macro fact about the shock mix, not a repricing of sovereign risk, and it will revert once demand shocks reassert themselves. A change in the shock mix would flip the sign of the correlation without any change in what investors believe about the safety of US government debt. Supply shocks are bad news for both stocks and nominal bonds. Two features of the data speak against the pure shock-mix reading. First, the correlation flip loads on the wrong component of the yield. Acharya and Laarits (2025) decompose the Treasury yield into a frictionless risk-free rate, a credit-risk component proxied by the sovereign CDS spread, and the Treasury premium/convenience yield, and then decompose the aggregate stock–bond covariance into the three corresponding terms. The covariance attributable to the Treasury premium component does most of the work. Supply shocks move expected inflation and real rates, and that is where a change in the shock mix should show up in the covariance. It does not. Second, the flip is maturity-specific in a way a macro shock mix cannot easily generate. Acharya and Laarits (2026) apply the same decomposition to the April 2025 tariff episode and find that the rise in stock–bond covariance is concentrated in the Treasury premium component of long bonds, while the short end of the curve retained both its Treasury premium and its hedging property accompanied by a rotation of safe-asset investors toward shorter maturities. The shock mix does not explain why the ten-year should stop hedging while the two-year continues to. Duration-specific fiscal risk does exactly that, and the same term-structure signature appears twice more in this paper: the Treasury-premium reversal in Panel (b) of figure 1 is concentrated at the 5- and 10-year tenors, and the Treasury’s migration toward bill issuance documented in section 4 is the quantity counterpart of the same repricing.

The basic message is dramatic: the operating logic of the Treasury market, the largest and most foundational market of the global system, is no longer that of a market for safe asssets. Global investors now regard the $32 trillion in US debt in public hands, as risky.

And part of the problem, part of what makes them risky, is that the US authorities stubbornly refuse to take seriously this new reality. Bessent’s cack-handed interventions of the last weeks only reinforce this point.

Bond investors and monetary policymakers now disagree on how to price US government debt. Bond investors increasingly question the safety of US Treasurys, and they have re-priced Treasurys as a risky claim. Central bankers and financial regulators have not adjusted: their models and financial regulation still treat government debt as unambiguously safe.

The Fed and now the Treasury too have on many occasions refused to accept the verdict of the market and have insisted that sharp movements in yields are ultimately explained not by fundamental but by technical issues of market plumbing, liquidity etc. Most recently, Bessent’s interventions are explicitly premised on the idea that the market is mis-pricing US Treasurys, particularly at the long end.

So far, Lustig is rehearsing well known observations about financial markets. The plot thickens as he begins to spell out the “real-world consequences”, of the disagreement over bond prices.

When investors sell off Treasury bonds in response to fiscal news, monetary policymakers operating under a safe-debt view read the move as a “bond-market plumbing” problem and respond by deploying some of their balance-sheet capacity to purchase US Treasurys.

Even the US Treasury is now intervening to correct “plumbing issues”.

Market participants, by contrast, drove the sell-off themselves: they sold Treasurys because they read the fiscal news as implying US Treasurys are risky, and the resulting price decline is price discovery, not dysfunction.

The result is an intensifying spiral or perverse interactions. Bondholders no longer trust that there is any chance of a fiscal policy or monetary policy response to large deficits. So “bad fiscal” news hits bond prices. Rising yields then intensify the fiscal pressure. And, to add to the perversity, increasing fiscal pressures actually DOES begin to generate plumbing issues in the financial system, providing confirmation for the diagnosis by the Fed and Treasury, even as that diagnosis ignores the fundamental issues at stake. As Lusting puts it:

Fiscal and bond-market plumbing problems are intertwined. The erosion of the Treasury premium at the long end of the yield curve has pushed the Treasury toward shorter maturities, raising rollover risk. Primary dealers, the large banks that buy directly from the Treasury at auction and resell to investors, are balance-sheet constrained after the 2008 Global Financial Crisis (GFC); hedge funds have partly replaced primary dealers and absorbed a significant fraction of the Treasury issuance. Together these factors raise the probability that a failed auction or rollover spike forces emergency measures precisely when market confidence is most fragile.

Lustig’s account thus connects to the Treasury market fragility which I discussed in an earlier post.

The result, Lusting insists, will be a spiral of increasing financial repression.

Lustig’s remarks are addressed to the Fed:

If the Fed persists in interpreting Treasury sell-offs through the safe-debt frame, it risks both suppressing the price signal and absorbing a growing share of issuance onto its balance sheet, mirroring the Bank of Japan (Chien et al. 2025a) and the Eurosystem (Chien et al. 2025b). In both cases, these central banks help sovereigns borrow at below-market rates, a form of financial repression (Gómez-Cram et al. 2026). … The historical record is sobering. From 1942 through 1951, the Federal Reserve capped longbond yields at 2.5 percent to help finance the war effort. When inflation reached 14 percent in 1947, American savers, retirees, life-insurance policyholders, and pension funds incurred significant real losses until the 1951 Treasury–Federal Reserve Accord ended the peg. … the more the Fed absorbs fiscal news as “plumbing,” the further along this path the US moves. There is no clear exit strategy from financial repression. The longer the Fed waits to restore price discovery, the more difficult it will be to do so without a disruptive market adjustment.

They are even more acute if we consider the US Treasury’s interventions.

The question for this week is how will Warsh in his address to the Jackson Hole meeting? Reuters links Lustig directly to Warsh’s dilemma:

Warsh has long criticized the Fed’s large-scale asset purchases, arguing such interventions should be reserved for genuine market dysfunction, with rate policy driving the employment and inflation mandates. Stanford finance professor Hanno Lustig contends in a recent Aspen Institute paper that the question of how safe Treasuries are has become a key dividing line. Trends in government-bond pricing and other ⁠factors show that markets already treat Treasuries as risky, he says, while the Fed and policymakers still act as if they’re safe. This distinction matters because when yields spike on fiscal worries, the Fed intervenes to calm markets on the grounds that market dysfunction is causing the problem rather than worries about investment safety, he says — a decision that stands to muffle the price signals that would ⁠otherwise warn of unsustainable debt. Ultimately, many analysts and portfolio managers agree that tweaks to buybacks, issuance and market plumbing can’t fix a longstanding problem that has recently gotten much more acute — persistent fiscal deficits. The best case is for policymakers to embrace debt reduction driven by stronger growth, Garvey said — a choice that implies some hard choices in Washington. “It’ll be very difficult to reduce the deficit without taking some fiscal action,” he said, “which requires either higher taxes or lower spending.”

Financial repression or austerity - is this the question? Does either really seem likely under MAGA. As I argued yesterday, are we not painting in dark, dramatic colors, a state of affairs that is much better characterized as a grey zone, somewhere between obfuscation on the one side and histrionics on the other?

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Chartbook 470 Treasury v. Fed 2026: Battle Royale or “Epic Fury” in the bond market?

Adam Tooze — Wed, 26 Aug 2026 11:29:39 GMT

To have the two central agencies of government economic policy not engaged in a coherent division of labour, but pulling in opposite directions, points to a fundamental dissensus at the heart of government.

When this happens in the United States, still the anchor of the dollar system, and the players involved are the Federal Reserve and the US Treasury and the arena for their struggle is the $32 trillion market for US Treasuries - supposedly the world’s most important liquid safe asset - it would seem that we have the makings of a Battle Royale.

For obvious reasons, observers have long worried about the fiscal and monetary politics of Trumpianism. Trump and his minions have verbally and legally assaulted the Fed. With Kevin Warsh as the new Fed chair the verbal assault has relented somewhat. But the legal assault continues.

Nevertheless, the escalation of tension between the Fed and the US Treasury in August 2026, has taken markets and the commentariat by surprise.

What has caused the escalation is the rise in long-term bond yields that has gathered significant momentum, in part because of the fiscal fundamentals and in part because of the new round of supply shocks delivered by the Iran war and the prospect of a renewed rise in inflation. This shift in the market mood has happened just as Kevin Warsh is struggling to establish his conservative new regime at the Fed. In the long-run Warsh no doubt hopes that a new era of restrained Fed communication will allow a stable equilibrium at low rates of inflation and moderate bond yields. That is not the situation this summer. The inflation rate in the US is now back up to 3.7 percent and long-term bond yields are at rates not seen since the early 2000s.

Impatient for some immediate relief, the unthinkable has happened. US Treasury Secretary Scott Bessent, has announced interventions in the markets for US Treasuries to drive up bond prices and reduce long-term yields. After 2008 we got used to central banks buying bonds on a huge scale. But the central mission of Warsh’s chairmanship is to break the Fed out of that habit. For the US Treasury to be engaging in open manipulation of the bond market, is both a step in the opposite direction and a substantial expansion of government intervention.

Krishna Guha, vice-chair at Evercore ISI, said the Treasury’s move might not have only unsettled investors, “but folks on the FOMC as well”.

To make matters worse, Bessent justified his interventions by claiming that the Treasury market was out of line with “fundamentals” and that as the ultimate insider he has an asymmetrical informational advantage that warrants his interventions. Both claims contradict the new view of the Fed which seeks to disentangle policy from the market, to limit any use of its own asymmetrical informational advantage and to allow “real” market forces to speak.

On the face of it, this has the makings of a crisis that would make the battle between Liz Truss and the Bank of England, the moron premium and the upheaval in the UK gilt market, look like a storm in a teacup.

Historically, battles between Treasuries and central banks have defined the fiscal and monetary regime: in the 1951 Fed-Treasury accord, in the 1980s and 1990s in the establishing of independent central banks on the Bundesbank model in Europe.

In 2026, the stage seems set for a major clash.

The dramatis personae could hardly be more theatrical. Both Bessent and Warsh are former proteges of legendary macro trader Stanley Druckenmiller who took to the pages of the WSJ to criticize Bessent’s intervention.

The Treasury Department announced on Aug. 19 that it would double the size of its long-dated bond buybacks, from $2 billion to at least $4 billion per operation, aimed at the 10- to 30-year sector and running from Sept. 9 through Nov. 4. The announcement came after the 30-year yield touched a 19-year high. Yields fell within minutes. By the next afternoon they had round-tripped to levels above where they started. The market’s verdict was swift and correct: This wasn’t liquidity management, it was price management—and a mistake far larger than $4 billion suggests. Treasury’s announcement gave the game away. It justified the larger operations as liquidity support in sectors with “consistent strong sponsorship from market participants,” but strong sponsorship is the definition of a healthy, working market. There were no failed auctions, no dealer balance-sheet seizure, no forced unwinds, nothing resembling Treasurys in March 2020 or U.K. gilts in September 2022, the sort of genuine dysfunctional episodes that justify official action. Volatility was contained, and trading was orderly—not a malfunction but the machine doing its job. Consider what the machine was pricing. Inflation is 3% to 4% and has been above the Fed’s target since 2021. Unemployment is 4.1%, full employment by any definition. The deficit is running near 6% of gross domestic product, a number America has never before produced in peacetime at full employment. … The 10-year yield, even after the summer selloff, sits at or below the economy’s nominal growth rate. That means a borrower (federal government) running 6% deficits at full employment, with above-target inflation, still funds itself at roughly the rate its economy grows. … The bond market wasn’t being a vigilante, as some would argue. It was being a pushover that had finally begun to clear its throat, and Treasury moved to quiet even that. I have spent five decades trading on a simple premise: Markets aggregate information no committee possesses, and prices are how that information reaches decision makers. The long-term Treasury yield is the most important price in the world. It is also the only fiscal disciplinarian the U.S. has left. Neither party will run on entitlement reform. Both have spent the past decade expanding commitments while ignoring arithmetic. Democracies don’t repair their finances because a budget office publishes a table. They repair them only when the cost of inaction becomes visible and immediate, when mortgage rates bite, when auctions tail, when the political price of a rising long bond finally exceeds the political price of touching spending. Every basis point of artificial yield suppression is a subsidy to procrastination. Yield management always begins as a technical operation and ends as a policy commitment. From 1942 to 1951, the Federal Reserve capped long Treasury yields to finance World War II. The cap outlived the war, financed deficits with printed money, and fueled double-digit inflation. It took the 1951 Treasury-Fed Accord to dismantle the cap, followed by years of financial repression that quietly taxed a generation of savers. U.S. policymakers built the wall between debt management and price management for a reason. This intervention starts dissolving it. Within a day of the announcement, Treasury Secretary Scott Bessent indicated the operations could grow beyond $4 billion, and analysts observed that Treasury can double them again and again. When the bond market didn’t respond to this threat, senior Treasury officials told reporters that the department could use the Treasury General Account to intervene. Once markets believe Treasury is defending a price, every rise in yields becomes a test of official resolve, and the operations must grow to survive the tests.

Because this is 2026 it didn’t take much sleuthing to establish that Druckenmiller’s piece was in large part written by AI, a fact which Druckenmiller did not even deny. He clearly agrees with whatever the Algo has come up with and so it seems does the Wall Street Journal. It is hardly surprising that the Algo knows the script. This isn’t rocket science or predicting protein structures. What are at stake are elementary components of any conservative understanding of the fiscal and monetary constitution.

In response, Citadel Securities have come out and labelled Bessent’s actions as “financial repression” - holding interest rates down in the face of inflation.

Many of us in the critical macrofinance camp have long been arguing that financial repression is, indeed, the likely and least worst way forward. Perhaps we did not expect our prophecy to manifest in this form, but history sometimes works in strange ways.

Later this week Warsh goes to the exclusive gathering of central bankers at Jackson hole to deliver his first speech as Fed chair. What will he say? Will he openly challenge the Treasury Secretary of the United States? Market observers are nervous about a coming clash:

“I have a very dim view of the Treasury’s rationale and its tinkering. I think it’s a self-limiting, self-defeating strategy,” said Greg Peters, co-chief investment officer at PGIM Credit. “The markets are looking for something out of Warsh, but I am not sure what he’s supposed to do here.”

The very fact that we are asking such questions is itself shocking.

Given the unfolding script, the temptation to amplify the very real shock that is unfolding in financial markets, with the melodrama of Fin-Fi(ction) is irresistible. Serious-minded economists are asking whether US Treasuries can in any real sense be regarded as safe assets. Is this the beginning of the end of the dollar system? More on this, in the next installment of what is turning into a Chartbook mini-series.

But, first of all, let us return to 2026 and pinch ourselves. Is it plausible to imagine that Scott Bessent of all people is initiating a major pivot in policy? Who are we dealing with here? Are these Titans of financial history?

Being a fool or a blow-hard does not mean that you cannot have a real impact on the world. But one thing we should not take at face value is what such people say. In the case of the second Trump administration one thing we know is that they like to talk loud but they may only be carrying a teeny-tiny stick. In the first year of the Trump administration I argued that we should take the poolside, botox culture of Mar-a-Lago more seriously as a guide to strategic thinking than the pontifications of MAGA’s finance whisperers.

In 2026 is it time to take the bungling incoherence of Operation Epic Fury as our template?

Like major military operations, official bond market intervention can make a real difference. The Bank of Japan under Kuroda, the Fed under Ben Bernanke and Jerome Powell, the ECB under Draghi, all drove bond purchases to gigantic proportions. The Fed in March 2020 was buying more than $100 billion per DAY. This number is so staggering that the esteemed John Authers in a recent piece misremembered it as the monthly figure. It was the DAILY purchase!

So, in 2026, faced with a real bond market rout, when the Treasury Secretary wants to make a major impact on the biggest financial market in the world, he must, surely be talking about gargantuan numbers. Otherwise, he surely knows that it would be an embarrassing flop. He must be thinking in terms of hundreds of billions in purchases sustained over months, seriously restricting net supply to the market. You might think!

But then you remember we are in 2026. The year of Epic Fury.

In fact, the doubling of bond buy backs that Bessent has announced is so tiny that it requires a special graphic to explain:

As Toby Nangle points out, this can have no significant impact on net issuance and has no prospect whatsoever of shifting the market.

Bessent himself does not seem to know what to make of his embarrassment.

On the one hand he wants to defuse the tension by arguing that all that the Treasury is doing is ironing out liquidity issues at the long-end, using its firepower and superior knowledge to facilitate a sensible repricing. Perhaps Bessent actually believes that serious fiscal consolidation is coming and expects market actors to follow him. If the movement in bond markets was mild, if sentiment was basically stable, such signalling might even have some effect - a kind of fiscal forward guidance. But given the scale of uncertainties and the gargantuan level of issuance, that is far from being the case.

So, Bessent pivoted to other side. Embarrassed by the market reaction, the Treasury let it be known “through sources” that it could actually tap up to $1 trillion dollars in the Treasury’s general account.

$1 trillion is a lot of money. But, once again, the market winces with embarrassment. As Robin Wigglesworth pointed out

… this just makes the Treasury seem even more desperate, like doubling down on a bad hand. The TGA is like the US government’s checking account at the Fed, where tax revenues, debt sale proceeds etc all pool up. But most of that money is going to concrete things, like running the US government, or there as a backup in case of a catastrophic market breakdown. It’s not idle financial firepower sitting there for Treasury secretaries that want to try their hand at bond trading again.

If the Treasury sets itself up to defend a price target with purchases funded from its current account with the Fed, it is simply setting itself up to shovel profits into the accounts of speculators who will eventually break the peg. The daily turnover is more than $ 1.2 trillion. No doubt the Fed could extend an overdraft to the Treasury. In the end, the government is a single financial unit. But this would involve a gross violation of long-established firewalls. The only agency that under the prevailing dispensation, has a truly unconstrained account is the central bank. That is what gave the Fed and its peers the firepower to boss bond markets. But, if the Fed under Warsh is committed to one thing, it is to abstaining from any such manipulation, except under conditions of an overt and life-threatening financial crisis.

No such conditions prevail.

So what is the upshot of this bizarre display by the US Treasury?

It would be highly surprising if the Treasury altered the course of interest rates and actually led to a new age of financial repression.

It would be surprising if Warsh at Jackson Hole decides to take a principled stance.

It would be no less surprising if Bessent were to turn out to be right and there were actually to be a fiscal consolidation in the US.

The most likely outcome is that there is no regime shift, but that the Treasury loses credibility, a “MAGA premium” further raises borrowing costs, increasing the deficit and thus compounding pressures in the bond market.

As Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, put it to the FT

intervening in the Treasury market “because you’re cranky” about rising yields “is not a compelling argument and smacks of whimsy”. “And you don’t want an unpredictable, whimsical Treasury”

The choice of words here is telling. The question is not whether Trump’s Treasury is a mighty historical force on the cusp of changing the financial regime and inaugurating a new era of financial repression. To speak in those terms is to engage in Fin-Fi melodrama. The problem is that under Bessent’s stewardship the Treasury is “cranky”, “unpredictable” and “whimsical”.

That seems right for 2026, the year of operation Epic Fury, the year when after wreaking real havoc in Iran, America found its mighty aircraft carrier battlegroups disabled by bargain basement drones, and a near mutiny of their crews provoked by prison-quality food and blocked toilets.

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Chartbook 469: The risk of unwind - The US Treasury market in the era of the hedge fund-profit dollar.

Adam Tooze — Sun, 23 Aug 2026 13:40:08 GMT

The interest rate set by bond markets around the world, are going up. As tens of trillions of dollars of fixed-interest debt trade at lower prices, yields rise. The market where this matters most is the gigantic market for US Treasuries. At the same time, in the summer of 2026, the discussion of China shock 2.0 focuses our attention on the huge trade surplus of China and the huge deficit of the US. We are still, in other words, in a world of “twin” US “deficits”: both on the government budget and on current account. But that world is very differently structured than it once was. And the risks of financial havoc induced by private financial actors are far greater.

Whereas once those two deficits were directly linked by their financing mechanisms - trade surpluses with the US accumulated by exporters like China were reinvested by official reserve managers in US Treasury bonds (so-called “Bretton Woods 2.0” recycling), the relationship is no longer so straight forward.

This is brought out by the latest paper by Anusha Chari and Gian Maria Milesi-Ferretti of Brookings. As they show, in the classic era of reserve accumulation under Bretton Woods 2.0, between 2000 and 2009, a very large share of net US Treasury issuance was acquired by foreign official reserve holdings - the “twin deficits” model in action.

Since the 2008-2009 crisis, the twin deficits model has gradually been replaced by a new regime.

In the 2010s, as post-crisis deficits piled up and US Treasury issuance continued at a rapid pace, some foreign official reserve accumulation continued. But it was now increasingly foreign private investors who took over the absorption of new debt, along with domestic private investors (the data are adjusted to allow for the offshoring of US private holding to the Cayman islands).

Since 2020 with unprecedented deficits and debt issuance, the kind of official reserve accumulation typical of the 2000s has come almost entirely to a halt and it is US and foreign private investors who have absorbed the new issuance of Treasuries.

Tracy Alloway tells the same story with a graph showing shares of Treasury ownership. The dark turquoise line (for official foreign reserves) peaks around 2008-2009 at over 40 percent and then declines. The ligher blue line for foreign private holdings overtakes official foreign holdings. And the dominant buyers are now domestic private investors.

Though China continues to run huge trade surpluses with the US and it continues to manipulate its exchange rate, this no longer manifests in large-scale official purchases of US Treasury debt. So who are the foreign investors who still buy dollar assets and thus finance US trade deficits? What attracts them? And what attracts both foreign and US private investors into Treasury debt? The simple answer is that it is no longer the imperative of foreign exchange manipulation or export-orientated industrial policy that is driving funds into the Treasury market, but the pursuit of profit.

For investors worldwide US financial markets with their promise of outsized returns have proven irresistibly attractive. Equity markets are one key element of this. As Chari et al’s data show, America’s bilateral financial liabilities especially towards the Euro Area, the Anglosphere and advanced Asia consist in large part of portfolio equity investments and FDI. By contrast, portfolio debt (i.e. Treasury positions accumulated in the 2000s) dominates bilateral liabilities towards China. Since the 2010s, China has been converting its huge claims on the world economy into claims on debtors other than the US.

But US Treasuries too attract interest, above all for the financial operations that such a liquid asset permit. Since the 2010s amongst foreign owners it is above all major global financial centers - the euro-area, the UK- that have increased their share of US Treasury holdings … and the Cayman islands.

The Cayman islands matter because they are the offshore home for a significant cluster of hedge funds. And since the 2010s it is hedge funds who have provided a key source of demand for US government debt.

This accumulation first began in the late 2010s as the Fed began to pull back from quantitative easing (i.e. Treasury purchases). Hedge fund Treasury holdings crested in early 2020 just ahead of COVID. This worked as long as it worked. But it also brought with it a major new source of instability. Hedge funds are hugely sensitive to rates of return and they operate with leverage. If the going get rough they are forced to exit. This became painfully evident in the spring of 2020. As the turbulence of the pandemic hit, the funds offloaded hundreds of billions of Treasuries, causing panic in the market in March 2020 - the crisis discussed in the last Chartbook newsletter.

A recent research paper by Phillip J. Monin of the New York Fed shows, the size of the hedge fund investment in Treasuries

Figure 1. Treasury Exposures, Repo Exposures, and Turnover

Note: Data are monthly through September 2025. Physical and derivatives exposures estimated as in Banegas et al. (2021). Treasury market turnover includes cash securities and Treasury-linked derivatives. Sources: SEC Form PF, author’s analysis.

Through 2023 hedge fund activity was subdued. But then, with a significant tightening of Fed policy, hedge fund purchases of US Treasuries surged. Their share of the overall Treasury market doubled, even as the volume of Treasuries increased by trillions of dollars. As the NY Fed research found: “Hedge funds’ Treasury securities holdings now exceed those of mutual funds and U.S.-chartered depository institutions.”

Hedge fund demand, as was already demonstrated in 2020, can be extremely volatile, overstretching the capacity of even the deepest and most liquid market to absorb sales. So this accumulation of exposure is worrying. And it is all the more so, since it is clear that this accumulation of Treasury exposure is financed not through a huge accumulation of new funds by the hedge funds themselves, but by borrowing. According to recent research by the OFR “Hedge funds primarily rely upon repurchase agreements and prime brokerage borrowing. In 2025, hedge fund repurchase agreement borrowing grew by 154% and prime brokerage borrowing by 83% since 2022.”

Figure 4. Hedge Fund Borrowing ($ billions)

Note: Data as of June 2025. Data reflect only QHFs.

Sources: OFR Hedge Fund Monitor, Office of Financial Research.

As the New York Fed research identified:

The scale of this expansion is striking: since the beginning of 2023, hedge funds’ gross Treasury exposures, repo borrowing levels, and monthly turnover in Treasury markets have all more than doubled. Moreover, their Treasury activities have become increasingly concentrated, with the 50 largest funds by gross Treasury exposures accounting for approximately 90 percent of the total, up from 84 percent at the beginning of 2023.

Decomposing different types of trades put in place by the hedge funds, the New York Fed found that

highly leveraged arbitrage strategies (basis trade and swap spread arbitrage) account for nearly half of the $2.4 trillion in long positions as of September 2025, while the remaining exposure is distributed across yield curve trades, unencumbered cash holdings, and long-only investment uses.

Figure 3. Hedge Funds’ Estimated Uses for Long Treasury Exposure

In short, if as I argued in the last Chartbook post, the shock of March 2020 continues to hang over the market. There is very good reason to be worried.

In the 2020 crisis it was above all the unwinding of highly leveraged basis trade positions that did the damage to the Treasury market. According to the New York Fed, that risk is far worse today than it was at the time of the COVID outbreak:

Figure 4. Hedge Funds’ Estimated Basis Trade Positions

“We estimate that aggregate basis trade volumes reached approximately $830 billion in September 2025, close to doubling their peak from early 2020.⁶ Hedge fund positions in the basis trade recently accounted for a historically high 3.5 percent of total outstanding privately held Treasury securities by market value, a 40 percent increase from the previous peak of 2.5 percent in early 2020.”

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Chartbook 468 “Apocalypse Now” in the Treasury Market? March 2020 as seen from August 2026.

Adam Tooze — Sat, 22 Aug 2026 14:47:45 GMT

"all history worthy of its name is contemporary history” - Benedetto Croce 1917.

In 2026 we are worrying about bond markets again. Long yields are surging across the developed worl. The US Treasury is engaged in unprecedented intervention and the markets are not responding. Yields are back up and the dollar is down.

Given the scale of the US Treasury market this is a matter of global concern.

What is the worst thing that could happen? A large-scale sell off and a collapse of the Treasury market as a functioning institution.

Is it likely? More to say on that tomorrow. But the point to make here is simply that this is not a hypothetical. The near collapse of the US Treasury market, the most important financial market in the world, is something we have already lived through, in March 2020 as COVID spread around the world.

At the time, the world’s population had other things on its mind. But the Treasury market meltdown remains the most underrated shock in modern financial history.

I made it the center piece of my COVID book Shutdown. It is the core of Nick Timiraos Trillion Dollar Triage.

And it was highlighted in what was surely one of the most underrated journalistic feats of the last few months, Robin Wigglesworth’s oral history of the Fed’s COVID response in the pages of FT Alphaville back in February of this year. Sandwiched as it was between Trump’s interventions in Venezuela and Iran this journalistic retrospect did not attract the plaudits it deserved. I want to bring it back to the fore here, not simply because of its historical interest, but because it stakes out the terrain on which we seem again to be maneuvering. As has become clear in the last few weeks, we can’t think about the current mess in global bond markets without thinking of March 2020.

The truly lethal problem that was developing by the second week of March 2020 was that in the dash to cash, investors were selling not just equities and supposedly safe corporate bonds. They were also smashing the piggy bank of safe assets that they held in the form of US Treasuries. The result, as Daleep Singh - ex of Goldman Sachs then of the Obama Treasury and the NY Fed, later to join the Biden administration - told Timiraos, there was:

“nowhere to hide. There was no safe haven … What was truly the most frightening part of 2020 for me was how Treasury yields were spiking higher at the time that equity markets were plummeting. This was an un-hedge-able risk from a market perspective.”

The “Apocalypse Now” meeting of the FOMC came on March 15 2020. That was a SUNDAY! Not a normal day for a Fed policy meeting. It was timed to anticipate the market opening in Asia.

After words of thanks from Powell, the meeting started with Lori Logan of the New York Fed laying out “a long list of bad, terrible, no-good developments, such as airline bonds trading as if they were already in default; massive outflows from bond funds; dislocated trading across the board; even investment grade corporate bond issuance becoming “sporadic” and commercial paper market liquidity becoming “nearly nonexistent”.”

But, as Wigglesworth underlines, “the most alarming development was arguably happening in the US government bond market”

According to Logan:

Following several consecutive days of worsening liquidity in the Treasury market, market participants reported an acute decline in conditions toward the end of last week. A number of primary dealers reported that they had stopped making markets in off-the-run securities, and that this segment of the Treasury market had ceased to function effectively. This disruption to intermediation was due to extraordinary flows from investors seeking the safety of Treasury securities, particularly in the on-the-run Treasury securities, the most liquid, and from those selling off-the-run Treasury securities, which included reserve managers who sought to raise cash, hedge funds facing margin calls or seeking to reduce leverage, and asset managers looking to rebalance their portfolios. Dealers reported having difficulty selling these off-the-run securities and constraints on their ability to absorb any additional inventories that were coming their way. Given the central role of Treasury securities in pricing and in hedging, and as a store of value, this decline in liquidity spilled over into other markets and started to raise questions about the functioning of the financial system more broadly.

As one trader told Timiraos

“It was absolutely one-way traffic, and everybody was a seller. Everybody. Just raise cash,” said Christopher Vogel, a veteran trader who headed the rates and currency division at TD Securities, an arm of a large Canadian bank. “Anything near 99, 98, 97, 96 cents to the dollar? We’ll take it. The redemptions we saw were fierce, and the buying hands were in the pockets.” The result: sell Treasuries. “When cash is dear, you sell what you can, which may not necessarily be what you want,” said Hammack, the Goldman Sachs treasurer.

NY Fed President Williams double down on these alarming reports:

We are seeing stress and illiquidity and market dysfunction across a number of key, I would say, cornerstones of our financial system. This isn’t about the volatility in the stock market or some of those other markets. It is really about — to me, the primary focus for us is the fact that the U.S. Treasury securities market, which is, quite honestly, the most important market in the world, has shown a rapid deterioration in liquidity over the past week. . . . When I think about how these developments in the financial markets affect our ability to carry out our monetary policy and actually for those decisions to get to the businesses and households, it is absolutely essential that the Treasury security and the MBS markets are functioning well.

According to Wigglesworth global reserve managers sold $290 bn in Treasuries. Mutual funds unloaded $270 billion and hedge funds sold at least $180 billion, probably more.

Though the March 2020 sell off has been the subject of considerable research some of which has been reported on Chartbook, and though efforts have been made to reform the market, a subject to which we shall return, this scenario of dramatic, self-reinforcing selling that overwhelms private actors, remains the nightmare vision haunting the markets today, in 2026.

The response in 2020 was spectacular. As Wiggleswoth tells us: “Powell said that fixing the Treasury market was the main reason for the Sunday’s emergency meeting”

Logan explained what the Fed was already doing — primarily big repo operations — and what it now wanted to do to restore calm: buy a lot of bonds, starting with $40bn of Treasuries immediately that Monday. She revealed that the Fed had already bought $37bn the preceding Friday, three times more than the central bank had ever bought in a single day even in the wake of the 2008 crisis. Now Logan was proposing to do more than that every day.

On March 15th, given the scale of the looming disaster, the only point of debate concerned the scale of intervention. Neil Kashkari advocated that the Fed should simply announce unlimited purchases by just saying it would buy “as needed until we get markets functioning again”, rather than announce headline targets.

In making this argument, Kashkari himself was replaying his experience at the US Treasury in 2008 when he had been the point man for the widely reviled TARP bailout progam for America’s banks. On the basis of that experience he insisted that it was “much better for the Fed to overreact than underreact”.

“back in the financial crisis, the one mistake that, collectively, the Treasury, where I was, and the Fed repeatedly made is that we were always slow, we were always too little, and we were always timid. And that was because we didn’t know “Is this it?”—right? Is this as bad as the crisis is going to get? We didn’t want to overreact. But, as Charlie said, when the downside scenario is the great financial crisis, the downside scenario is a deep, deep recession, the downside scenario is an Italy scenario, the right policy response is to overreact, because you want to clip that very deep — maybe it’s small, but very deep — hole. I just think, as we think about policies for this and coming meetings, we should not worry about overreacting. We should be erring on the side of doing too much, not doing too little. . . . “

This was 2020, so the Atlanta Fed’s Raphael Bostic actually raised the question of “negative interest rates, and pointed out that the Fed might also get questions about modern monetary theory”.

Over the following weeks there would indeed be a gigantic fiscal policy push backed up by Fed purchases of Treasuries running at a staggering $75bn a day - a combination that could easily be read as the implementation of an MMT-style program of combined fiscal and monetary policy. The result transformed the Fed’s balance sheet far more dramatically than the 2008 crisis.

By the end of March 2020 that had done the trick in stabilizing the markets, enabling the April meeting of the FOMC to take on a calmer and more retrospective mode. By April 2020 it was already becoming clear what some of the forces had been that had contributed to the disastrous implosion of Treasury market liquidity. As Wigglesworth tells us:

Fed vice chair Lael Brainard zoomed in on some of these “notable vulnerabilities” in her subsequent comments. A wave of redemptions at bond funds and muni funds raises questions of whether liquidity management frameworks are sufficiently robust. Prime money market funds are once again under the spotlight, after a wave of redemptions led to stresses that required emergency interventions. The need to exit crowded positions among hedge funds with relative value strategies contributed to the massive distortions in Treasury securities markets.

Quarles echoed these comments:

I do think that this event has thrown into relief some vulnerabilities in the nonbank financial sector that we have talked about for some time but that had not been addressed in the wake of the previous crisis or not addressed completely, perhaps because of response fatigue or just the more difficult nature of the response. But I do think that it will be incumbent on the Financial Stability Board to pick up some of these questions about nonbank finance and to look at them much more intently.

It was again down to Kashkari to adopt a more urgent and more political tone:

I think the fact that this is happening 12 years after 2008 is just shocking to me and probably shocking to all of us. Over the longer term, I think it is going to raise many more fundamental questions about our regulatory system, not just for banks, but for nonbanks. I mean, the basic theory of our regulatory reforms coming after ’08 is that institutions should be self-insuring. And yet we’ve already demonstrated that that’s failed. The Federal Reserve has taken extraordinary actions in the past month, and I support those actions. It was the right thing to do to stand up all of these facilities to support financial markets. And now everybody knows that we’re there. And we were there in ’08, we are there now, and we’re going to be there in the future. And so, even after we officially deactivate these facilities when the COVID-19 crisis passes, in a sense, these facilities are always on in the background now. And so, to me, I think we have to ask, over the long term, much more fundamental questions about the structure of our financial markets. Think about overnight funding markets. Is there any social value to allowing institutions — banks or nonbanks — to fund themselves overnight? The only social value that occurs to me is that they can maximize their profits in the short run, knowing that the Federal Reserve is going to be there in the long run when things get scary.

No one in August 2026 is saying that anything like the COVID shutdown of March 2020 is going to play out in the near future. The US economy is in far more robust shape. But the shock of March 2020 is in the system. When Wigglesworth wrote last week about the “The Treasury market’s toxic codependency” with hedge funds, it is March 2020 experience that he invoked.

To riff on Croce: If it is true that all true history is contemporary history, then it is also true that any serious engagement with current moment, with contemporary reality, must necessarily be historical.

This is how Daleep Singh recalled the meltdown of 2020:

“It was sheer, unadulterated panic, of a magnitude that was far worse than in 2008 and 2009. Far worse,” said Singh, who had spent the 2008 crisis on the interest-rate desk at Goldman’s trading floor in London. The idea of shutting down markets was especially discouraging. “It was a profoundly un-American thing to contemplate, to just shut everything down, and almost fatalistic—that we’re not going to get out of this.”

2020 appeared to Singh through a double layer of history: the experience of 2008 set off against something older, something supposedly authentic and essential, the deep ideological ground of Americanness. In 2026 Bessent as Trump’s Treasury Secretary and Warsh as Powell’s successor are adding their own layers.

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Chartbook

Top Links 1214 Dollar exposure. Starbase Louisiana. Spain's lost empire & "The Acropolis of the New World".

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Top Links 1212 The circularity of Big Tech's earnings. Squeezing the middle tier of US higher ed. The Mad Dog of Europe & the peasant wars.

Top Links 1211 Scenarios for big tech. China's birth collapse. Air power in the Pacific & the violence of bureaucracy.

Top Links 1210 Bonds, bonds, bonds. World hunger. Aliens and the man for whom the Dolomites are named.

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Chartbook 472 Neo-Burgundian technocracy: Ernst Jünger’s reckoning with nihilism.

Tops Links 1208 Profit boom. Political fragility. The shadow surge in deportations & ultra-long horizontal wells.

Top Links 1207 US deficits. Counting India. Coquillards. Stracciatella and Batman.

Chartbook 471 Still Safe? Cognitive dissonance in the Treasury market.

Top Links 1206 American animal spirits. Norway breaks with EU energy policy. Who pays for the Premier League & the Beijing silver mine.

Chartbook 470 Treasury v. Fed 2026: Battle Royale or “Epic Fury” in the bond market?

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Top Links 1204 Five ways the US economy depends on equities. The Trump family bank (sic). Flying dragons & the Muscadins.

Top Links 1203 Eichengreen on de-dollarisation. What a private finance crisis might look like. World hunger & the Kaiser's favorite war correspondent.

Chartbook 469: The risk of unwind - The US Treasury market in the era of the hedge fund-profit dollar.

Figure 1. Treasury Exposures, Repo Exposures, and Turnover

Figure 3. Hedge Funds’ Estimated Uses for Long Treasury Exposure

Figure 4. Hedge Funds’ Estimated Basis Trade Positions

Top Links 1202 Bond market denialism. Unhappy Taiwan. Argentina's polo-pony business & for want of a Patriot (PAC-3).

Chartbook 468 “Apocalypse Now” in the Treasury Market? March 2020 as seen from August 2026.

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