As Fed economists observed, this was no longer conventional monetary policy in which the Fed manipulated interest rates to affect market behavior. Instead, the “Federal Reserve’s balance sheet expansion” was an “emergency replacement of lost private sector balance sheet capacity by the public sector.”12 The Fed was inserting itself into the very mechanisms of the market-based banking model. The relationship between the state, as represented by the central bank, and the financial markets was nakedly revealed. The Fed was not just any branch of government. It was the bankers’ bank, and as the
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