What did Bessent learn in 1992?

In 1992, George Soros's fund did something few investors had managed before: force a G7 central bank to abandon its own currency defense. Stanley Druckenmiller ran the trade.¹ Scott Bessent, then 30 (born August 1962) and running the fund's London office, was on the team. By his own account, his part of the research was the British housing market. UK mortgages, he said on the All-In podcast in 2025, "were all floating rates. So if the Bank of England raised rates on a Wednesday, your mortgage went up on a Friday." That meant the Bank could not keep rates high for long without hurting homeowners.² The Bank of England had pegged the pound within Europe's Exchange Rate Mechanism at a level the market judged unsustainable given the UK's economic fundamentals. The fund bet against the peg. The Bank of England burned through billions defending it and lost anyway.³ The usual lesson: a government defending a price the market has already rejected is likely fighting a battle it cannot win.

Thirty-four years later, Bessent is the one running the defense. Since late July, the Treasury Secretary has been trying to hold down long-term Treasury yields through accelerated bond buybacks and to prop up the yen through direct currency intervention.⁴⁵ Neither campaign commits to a fixed level the way the ERM band did. Both still put him in the defender's seat he once helped attack. Which of the three endings is he headed for?

In June 2024, Bessent said Janet Yellen was using her post to help Biden's reelection. By tilting Treasury borrowing toward short-term bills, he said, she had "taken control of monetary policy" and "eased financial conditions substantially."⁶ As Treasury Secretary he kept the bill-heavy plan he inherited,⁷ and weeks before the 2026 midterms he is buying back long bonds in what he calls a "Treasury Twist," a trade the market expects him to pay for with more bills.⁸

Six defenses, three endings

1992: the ERM and the pound. The Bank of England tried to hold the pound within its ERM band by buying pounds and raising interest rates to make holding the currency more attractive. But the UK's inflation and growth position did not support the exchange rate it was defending. Speculators recognized the gap between the defended price and the underlying fundamentals, sold the pound aggressively, and forced a devaluation in a single day, September 16, 1992, remembered as Black Wednesday.³ The Bank of England carried out the defense, but HM Treasury and Downing Street ran it: Prime Minister John Major raised rates to 12 percent that morning and then, over Chancellor Norman Lamont's objection, to 15 percent.⁹ Its limits were finite foreign reserves and a government unwilling to hold the 15 percent base rate it had announced that afternoon.⁹ It lost because the fundamentals were against it.

1997 to 1998: the Asian financial crisis. This is the clearest large-scale illustration of what economists call the impossible trinity, or the Mundell-Fleming trilemma: a country can maintain at most two of three things at once, a fixed exchange rate, free movement of capital, and an independent monetary policy. Thailand, Indonesia, South Korea, and several neighbors had pegged their currencies to the dollar while keeping capital markets open, effectively surrendering the third leg.¹⁰ When the dollar rose against the yen, it dragged the dollar-pegged currencies up with it, and investors turned to what else was weak: current-account deficits, heavy short-term borrowing in foreign currency, and fragile banks. The pegs looked overvalued, and capital fled. Central banks tried to defend their currencies by burning through foreign reserves and hiking domestic rates, which crushed already fragile banking systems. Thailand devalued the baht in July 1997, and the contagion spread region-wide within months.¹⁰ Here the trilemma is the mechanism that turned a currency wobble into a regional crisis.

2008 to 2014: Fed quantitative easing and Operation Twist. Bessent named his own buyback program after the second of these, calling it a "Treasury Twist."⁸ Under QE, the Fed created new money to buy trillions of dollars of Treasuries and mortgage bonds. Under Operation Twist in 2011 and 2012, it sold $667 billion of short-dated Treasuries and used the proceeds to buy long-dated ones, flattening the yield curve without growing its balance sheet.¹¹ Both worked, at least on their own terms, and for the same reason: the Fed pushed long rates in the direction a disinflationary, sluggish-growth economy was already taking them. Treasury's version copies Twist's mechanics without that tailwind. It is pushing long yields down while the Fed raises rates.

2015: the Swiss National Bank's franc floor. The SNB had pegged a floor for the franc against the euro to protect Swiss exporters from an overvalued currency. This defense ran the other way from 1992: the SNB was holding its own currency down, paying with francs it could create without limit. It held the floor for over three years, buying foreign currency in unlimited quantities by its own declaration. Then, in January 2015, it ended the floor by its own choice and without warning, sending the franc surging roughly 30 to 40 percent against the euro in a single trading session before settling at a smaller gain.¹² The SNB had concluded that the growing balance sheet exposure cost more than the floor was worth. That makes it a different kind of ending: a defense that held for years and ended when the cost of continuing outran the benefit.

2016 to 2024: the Bank of Japan's yield curve control. From September 2016, the BoJ pledged to hold the 10-year Japanese government bond yield around zero and to buy whatever quantity of bonds that took.¹³ That was an explicit numeric target. Treasury's buybacks have none. For five years the pledge cost little, because inflation was dormant and the market mostly agreed with the price.¹⁴ When global inflation arrived in 2022, the market pushed against the 0.25 percent ceiling, and the BoJ had to offer to buy 10-year bonds at 0.25 percent every business day, in whatever quantity sellers brought.¹⁵ Then it gave ground: it widened the band to 0.5 percent in December 2022, effectively moved the ceiling to 1 percent in July 2023, and ended the policy in March 2024.¹⁶¹⁷¹⁸ Two things kept the retreat orderly. The BoJ could print yen without limit, and the pressure it resisted escaped through a different price. The yen fell from about 115 per dollar to about 150 during 2022.¹⁹ The yield held because the currency gave way.

2022: the UK gilt crisis. After the Truss government's unfunded tax cut package spooked bond markets, the Bank of England stepped in with an emergency, time-limited program to buy long-dated gilts.²⁰ The BoE said the purpose was to restore orderly market conditions, named no target yield, and postponed its own planned bond sales.²⁰ The fix came from the government, which reversed the tax cuts within weeks. The Bank's purchases bought the time for it.

How the six ended

The market breaks it. In 1992 and 1997, governments held a currency level against fundamentals they could not or would not change, spent reserves they could not print, and lost within days or months.

The defender backs off. The SNB held its floor for over three years and ended it when the balance sheet cost outran the benefit. The BoJ held its yield cap for six years, then retreated in stages once inflation turned, and the pressure released through the exchange rate.

The fundamentals move with it. QE and Operation Twist pushed long rates the way a weak economy was already taking them. The 2022 gilt purchases held the market steady while the government reversed the tax cuts. Only QE relied on creating money. Twist got its effect by swapping short bonds for long ones, the same trade Treasury makes when it sells bills to buy back bonds.

Where Bessent's 2026 interventions fit

Bessent is running two campaigns simultaneously. The bond campaign looks like the first two endings. The yen campaign has a better claim to the third.

The Treasury bond buybacks, doubled to at least $4 billion per operation starting September 9, 2026, come with no yield target. Treasury calls them liquidity support for the long end of the market.²¹ The price defense is verbal. Bessent has repeatedly warned investors he will "burn them" if they drive up Treasury yields, and as Bloomberg noted, verbal intervention only works if traders believe strong measures stand behind it.²² The measures are small. One $6 billion operation is about 0.02 percent of a $32 trillion market,⁵ and Operation Twist moved $667 billion.¹¹ The closest match to Treasury's stated design is the 2022 gilt operation: temporary, described as restoring orderly markets, with no target yield. The gilt purchases worked because the government supplied the fix by reversing the tax cuts. The buybacks have no matching fix. Druckenmiller, who ran the 1992 trade and was Bessent's boss, made the same comparison in the Wall Street Journal in August. He saw no failed auctions or dealer seizures of the kind that came with the 2022 gilt crisis, and wrote: "This wasn't liquidity management, it was price management."²³

Paying for them is the smaller problem. Treasury can issue more short-term bills, which swaps long debt for short debt without reducing the total, or draw down the roughly $950 billion it holds in its account at the Fed.²⁴ The limits show up elsewhere: every bill adds to the debt Treasury has to refinance within a year, and each Fed hike raises what those bills cost. On September 16, 2026, the Fed raised its benchmark rate a quarter point to 3.75 to 4.00 percent, the first hike since 2023, with the large majority of officials on the updated dot plot projecting at least one more increase this year.²⁵²⁶²⁷ That makes bill financing more expensive and pushes rate cuts further off. The forces lifting long yields are ones a buyback cannot offset: Brent crude above $100 on the Iran war, deficit worries, and inflation.⁵ The 10-year yield closed at 5 percent on September 15 for the first time since 2007 and touched 5.23 percent on September 25.²⁸²⁹

The yen intervention is the older kind of fight. In late July, Treasury joined Japan in buying yen, the first coordinated intervention to support the yen since 1998.³⁰ Japan spent an estimated $87 billion over July 30 and 31,³¹ and ¥15.39 trillion, a record, by late August.³² The US contributed an estimated $5 to 10 billion, paid for by selling euros from the Exchange Stabilization Fund.³⁰ For Japan, this is the 1992 and 1997 problem: buying your own weak currency means spending foreign reserves you cannot print. Its reserves stood at $1.21 trillion at the end of August, down a record $79.6 billion in the month.³³ The US leg has no such limit. The US was buying a foreign currency and could have paid in dollars, which it can create. Paying in euros rather than dollars, a first, was a choice Russell reads as protecting the dollar's value and Obstfeld reads as signaling only.³⁰³¹ The roughly $38 billion in foreign currency the Exchange Stabilization Fund and the Fed held going in caps only the US's non-dollar ammunition.³⁰ The yen went from about 164 per dollar before the intervention to about 153.5 on September 9, then gave back much of that gain after the Fed's hike.¹⁹³⁴

The trilemma explains why the pressure keeps coming. Japan keeps open capital markets and its own interest rate policy and lets the yen float. That is a legitimate choice of two out of three, with the exchange rate as the release valve. With the Fed hiking and Japanese rates still far lower, capital flows toward the higher-yielding dollar, and the yen absorbs it. Japan is raising rates too: the BoJ went to 1 percent in June and to 1.25 percent on September 18, its highest since 1995.³⁵ Russell Investments credits the July 2024 intervention's success to a BoJ hike arriving alongside soft US data and a carry-trade unwind, and notes the gain faded when further hikes did not come.³⁰ In 2026 there is no soft US data to help, and the BoJ's quarter-point steps do little to narrow the gap while the Fed is hiking too. Bigger steps would cost Japan: with gross government debt around 205 percent of GDP by the IMF's 2026 estimate, every point of higher rates adds to its interest bill.³⁶ Occasional intervention under a float does not break the trilemma by itself. The trilemma forces a breaking point only if Japan tries to hold a fixed level indefinitely, and it has announced none. With yield curve control gone since March 2024, JGB yields trade freely, so the pressure runs through the gap between US and Japanese yields and the carry trade built on it.

Is the defense working?

Bessent's own defense is a counterfactual: yields and the yen would be worse without intervention, an argument he made to the House Financial Services Committee on September 15, the day before the Fed's decision.³⁷ That claim is hard to test. CNBC's Jeff Cox concluded as early as August 20 that the two-pronged effort, accelerated buybacks plus public reassurance, "has met with little success": yields fell on the announcement and rose again the next day.³⁸

The buybacks may be the smaller tool: a Morgan Stanley strategist quoted by Bloomberg called them "likely just a bridge until they get to November refunding," where Treasury can shorten the maturity of new borrowing at far larger scale.⁸ And the two campaigns support each other. With the US buying part of the yen, Japan had less need to sell Treasuries to fund its own share, and large Japanese sales would push US yields up.³¹ But Japan appears to have sold Treasuries anyway to fund its August intervention,³⁹ a bigger refunding shift runs into the same bill costs that rise with every Fed hike, and both legs stay hostage to the rate gap and to what is lifting the long end: oil and deficits.

Bessent built his reputation betting that a defended price would lose to fundamentals. As Treasury Secretary he is defending long yields against large deficits and persistent inflation. Some investors have started calling his interventions "the Bessent put," a nod to the old Fed put.⁴⁰ Long yields kept rising anyway, through the days after Treasury announced a $6 billion buyback operation in September⁴¹ and on to their highest levels since 2007 by late September.²⁸

Treasury sets its own policy path, the buyback sizes and the November refunding, and knowing that path is the defender's usual edge. The Bank of England knew its own in 1992. It could not change the fundamentals, and Bessent, who was on the other side of that trade, saw how it ended.

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