September 10, 2025 • 9 mins
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The Federal Reserve’s credibility is cracking—and Scott Bessent just laid out why. From “gain of function” monetary policy to endless bailouts, the Fed has turned itself into a political machine. In this episode:
Apple Podcasts: https://podcasts.apple.com/us/podcast/watchdog-on-wall-street-with-chris-markowski/id570687608
Spotify: https://open.spotify.com/show/2PtgPvJvqc2gkpGIkNMR5i
WATCH and SUBSCRIBE on:
https://www.youtube.com/@WatchdogOnWallstreet/featured
The Federal Reserve’s credibility is cracking—and Scott Bessent just laid out why. From “gain of function” monetary policy to endless bailouts, the Fed has turned itself into a political machine. In this episode:
- How the Fed’s post-2008 power grab set the stage for today’s instability
- Why “independence” at the Fed is more myth than reality
- How reckless QE and regulatory failure fueled bank collapses
- Why both parties let the Fed keep breaking the rules
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst, and trader Chris Markowski.
Speaker 2 (00:16):
Scott Bessett takes on the FED. Not it is he
take on the Fed. He takes him apart. He put
out a piece and I thought it was clever. Quite frankly.
He called it, well, the Fed's new gain of function
monetary policy number a gain of function? Where got us
(00:36):
COVID messing around with viruses, over use of non standard policies,
mission creep and institutional bloat are threatening the central banks
monetary independence. And he goes through, He goes through all
of the all of the things they talk about, the
extra tools and the toolkit that the FED has taken
(00:59):
on since the Great Recession, all of the asset purchases
that have taken place, and what it is wrought. And
because of this, it actually kind of lent itself as
well to a having a more of a political take
(01:20):
on things, involvement in government, if you will. Again, the
FED extended its liquidity into completely uncharted territory two thousand
and eight, two thousand and nine, repurposing asset purchase programs
(01:41):
as instruments of stimulative monetary policy. And because it kind
of sort of worked, if you want to even call
it that, I'm trying to get my arms around. It
wasn't just the FED. They decided in essence to kind
kind of take the ball and run with it. I
(02:04):
often talk about many of the moral hazards that were
taken on during the financial crisis, when, in my opinion,
quite frankly, what we needed was a big flush, big flush,
and everything would have been just fine. Now I understand
your job. It goes back to the purpose of central banks.
(02:28):
There was a book written about this back in the
eighteen seventies. It's called Lombard Street, written by Walter Walter Bagott,
and he talked about the roles of central banks and
helping with liquidity crisis. I get that, but what we
ended up with is a situation where the FED, for
(02:53):
lack of a better phrase, they started believing their own bullshit. Again,
you've got economists from all of these fancy pants schools,
and again you can take a look at their CVS.
The resumes ninety nine point nine percent of them that
have never had a job in the private sector, never
(03:16):
had a job in the private sector. But man, oh man,
they thought, man, we went to these schools. We're smart,
kind of like Fredo Corleoni. I'm smart and I do
want to respect. And they put all these policies into play,
and it was perfect timing during the Obama administration. And
(03:39):
you've got to take a look again the FED and
their gain of function. Here, these were their projections based
upon their policy, their policies, and what they were going
to do. The FED forecast in two thousand and nine
that in twenty ten GDP would grow by three percent,
(04:03):
and then in twenty eleven it would grow by four percent,
again expecting that all its new gain of function monetary
tools would and a big, big fiscal deficit, right that
would stimulate the real economy. Now, well, again, the bounce
(04:24):
back in twenty ten was two point eight percent, but
then went down to one point six percent. Now, with
a recession like the Great Recession, we should have been booming.
We should have been booming. But again, in order to
(04:44):
you know, you want to say you want to bake
a cake, I want to call our economy a cake.
In order to bake a cake, you need more than
just sugar, if you know what I mean. The policies
of the Obama administration in regards to regulation and the
problems that were calling it, and I wrote columns about
this red tape nation didn't help much. And again, the
(05:08):
FED really wasn't going to step in and say anything
about that basically basically, and its entirepy talks about the
divisions that we've had, the asset inflation we have, how
it's been basically, well, it hasn't been good for average
Americans by any stretch of the imagination. And I have
(05:29):
to agree. And you take a look at the value
of our dollar and how it has continued to drop.
He writes, fed's missteps and policy making arrogance have placed
its credibility at risk, jeopardizing its independence on its core
responsibility of monetary policy. The overestimation of the power of
(05:53):
one's self or one institution is a fundamentally human trait.
In certain cases, it could even be productive, but it
is highly lead problematic for the conduct of monetary policy.
The Federal legends that it needs to be independent, but
is it or is it captive to the ghosts of
its past and its own ego. Monetary policy helped create
(06:15):
the housing bubble, and slow recognition by the FED and
the other warning signs worsened the financial crisis. Despite its culpability,
the FED emerged and the financial crisis with more powers
than it had going in. Then again, you also talk
about its complete missteps when it came to Biden and
his COVID stimulus package, and inflation is transitory nonsense. He
(06:40):
concludes here about the Fed's heavy intervention in our economy
leading to a series of unintended consequences. While these unconventional
tools were introduced to address extraordinary circumstances, their efficacy and
stimulating economic activity remains unclear, but they have clearly produced
(07:03):
severe distributional outcomes across American society. Un demined the Fed's
credibility and threatened its independence. At the heart of the
Fed's independence lies its credibility and political legitimacy. Both of
these tenants have been jeopardized by the Fed's decision to
(07:25):
expand its role beyond its traditional mandate and engage in
what amounts to gain a function monetary policy. These actions
have eroded the institution's insulation for political pressure, risking its
ability to function as an independent identity, and he says,
looking ahead, it is essential the FED commit to scaling
(07:46):
back its distortionary impact on markets. At a minimum, this
likely includes the FED only using and then halting unconventional
policies like QWI in true emergencies and in coordination with
the rest of government. It also likely requires honest, independent,
nonpartisan review of the entire institution and all of its activities,
(08:06):
including monetary policy, regulatory policy, communications, staffing, and research.
Speaker 1 (08:12):
Yeah.
Speaker 2 (08:13):
Again I popped into my head there regulatory policy. How
many banks went under after Dodd Frank that the FED
was supposed to be going over here, Silicon Valley Bank,
we had Signature Bank and Republic Bank, all you know,
the FED was supposed to be keeping an eye on
all of them. Again, very good piece by Scott Besting.
(08:39):
And this is something that we've discussed for some time
here on the pro We've pushed for here on the program.
Ran Paul, his father Ron Paul as well, auditing the
FED rating this entire monstrosity in again, most people have
no idea, no idea what it does, how it does it,
(09:01):
whatever it may be. And again it is is that
is that necessarily good for the country. I don't think so.
Watchdog on Wall Street dot com
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst, and trader Chris Markowski.
Speaker 2 (00:16):
Scott Bessett takes on the FED. Not it is he
take on the Fed. He takes him apart. He put
out a piece and I thought it was clever. Quite frankly.
He called it, well, the Fed's new gain of function
monetary policy number a gain of function? Where got us
(00:36):
COVID messing around with viruses, over use of non standard policies,
mission creep and institutional bloat are threatening the central banks
monetary independence. And he goes through, He goes through all
of the all of the things they talk about, the
extra tools and the toolkit that the FED has taken
(00:59):
on since the Great Recession, all of the asset purchases
that have taken place, and what it is wrought. And
because of this, it actually kind of lent itself as
well to a having a more of a political take
(01:20):
on things, involvement in government, if you will. Again, the
FED extended its liquidity into completely uncharted territory two thousand
and eight, two thousand and nine, repurposing asset purchase programs
(01:41):
as instruments of stimulative monetary policy. And because it kind
of sort of worked, if you want to even call
it that, I'm trying to get my arms around. It
wasn't just the FED. They decided in essence to kind
kind of take the ball and run with it. I
(02:04):
often talk about many of the moral hazards that were
taken on during the financial crisis, when, in my opinion,
quite frankly, what we needed was a big flush, big flush,
and everything would have been just fine. Now I understand
your job. It goes back to the purpose of central banks.
(02:28):
There was a book written about this back in the
eighteen seventies. It's called Lombard Street, written by Walter Walter Bagott,
and he talked about the roles of central banks and
helping with liquidity crisis. I get that, but what we
ended up with is a situation where the FED, for
(02:53):
lack of a better phrase, they started believing their own bullshit. Again,
you've got economists from all of these fancy pants schools,
and again you can take a look at their CVS.
The resumes ninety nine point nine percent of them that
have never had a job in the private sector, never
(03:16):
had a job in the private sector. But man, oh man,
they thought, man, we went to these schools. We're smart,
kind of like Fredo Corleoni. I'm smart and I do
want to respect. And they put all these policies into play,
and it was perfect timing during the Obama administration. And
(03:39):
you've got to take a look again the FED and
their gain of function. Here, these were their projections based
upon their policy, their policies, and what they were going
to do. The FED forecast in two thousand and nine
that in twenty ten GDP would grow by three percent,
(04:03):
and then in twenty eleven it would grow by four percent,
again expecting that all its new gain of function monetary
tools would and a big, big fiscal deficit, right that
would stimulate the real economy. Now, well, again, the bounce
(04:24):
back in twenty ten was two point eight percent, but
then went down to one point six percent. Now, with
a recession like the Great Recession, we should have been booming.
We should have been booming. But again, in order to
(04:44):
you know, you want to say you want to bake
a cake, I want to call our economy a cake.
In order to bake a cake, you need more than
just sugar, if you know what I mean. The policies
of the Obama administration in regards to regulation and the
problems that were calling it, and I wrote columns about
this red tape nation didn't help much. And again, the
(05:08):
FED really wasn't going to step in and say anything
about that basically basically, and its entirepy talks about the
divisions that we've had, the asset inflation we have, how
it's been basically, well, it hasn't been good for average
Americans by any stretch of the imagination. And I have
(05:29):
to agree. And you take a look at the value
of our dollar and how it has continued to drop.
He writes, fed's missteps and policy making arrogance have placed
its credibility at risk, jeopardizing its independence on its core
responsibility of monetary policy. The overestimation of the power of
(05:53):
one's self or one institution is a fundamentally human trait.
In certain cases, it could even be productive, but it
is highly lead problematic for the conduct of monetary policy.
The Federal legends that it needs to be independent, but
is it or is it captive to the ghosts of
its past and its own ego. Monetary policy helped create
(06:15):
the housing bubble, and slow recognition by the FED and
the other warning signs worsened the financial crisis. Despite its culpability,
the FED emerged and the financial crisis with more powers
than it had going in. Then again, you also talk
about its complete missteps when it came to Biden and
his COVID stimulus package, and inflation is transitory nonsense. He
(06:40):
concludes here about the Fed's heavy intervention in our economy
leading to a series of unintended consequences. While these unconventional
tools were introduced to address extraordinary circumstances, their efficacy and
stimulating economic activity remains unclear, but they have clearly produced
(07:03):
severe distributional outcomes across American society. Un demined the Fed's
credibility and threatened its independence. At the heart of the
Fed's independence lies its credibility and political legitimacy. Both of
these tenants have been jeopardized by the Fed's decision to
(07:25):
expand its role beyond its traditional mandate and engage in
what amounts to gain a function monetary policy. These actions
have eroded the institution's insulation for political pressure, risking its
ability to function as an independent identity, and he says,
looking ahead, it is essential the FED commit to scaling
(07:46):
back its distortionary impact on markets. At a minimum, this
likely includes the FED only using and then halting unconventional
policies like QWI in true emergencies and in coordination with
the rest of government. It also likely requires honest, independent,
nonpartisan review of the entire institution and all of its activities,
(08:06):
including monetary policy, regulatory policy, communications, staffing, and research.
Speaker 1 (08:12):
Yeah.
Speaker 2 (08:13):
Again I popped into my head there regulatory policy. How
many banks went under after Dodd Frank that the FED
was supposed to be going over here, Silicon Valley Bank,
we had Signature Bank and Republic Bank, all you know,
the FED was supposed to be keeping an eye on
all of them. Again, very good piece by Scott Besting.
(08:39):
And this is something that we've discussed for some time
here on the pro We've pushed for here on the program.
Ran Paul, his father Ron Paul as well, auditing the
FED rating this entire monstrosity in again, most people have
no idea, no idea what it does, how it does it,
(09:01):
whatever it may be. And again it is is that
is that necessarily good for the country. I don't think so.
Watchdog on Wall Street dot com
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