Video · 2026-07-15 · 1h 12m · 6 moments

Will the Fed Buy Stocks? | Animal Spirits 473

✦ AI generated

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Context

Broad stock ownership is historically recent (only ~4% of Americans owned stocks in the 1950s, 19% by 1983), and the resulting dominance of equities in household net worth is now permanent, not a cyclical peak that reverts.

Michael traces the rise of mass equity ownership via 401(k)s and IRAs from near-zero in the 1950s and argues the stock market's new dominance over real estate in household wealth is a permanent 'new normal.'

transcript

Michael Batnick: So this is this is the new normal and the stock market is just more important than ever and that's we're never going back to where that isn't the case.

explains mechanism · 1provides context · 2

Prediction◆

Because the stock market has become the backbone of Americans' retirement savings, it's plausible the Fed steps in and directly buys stocks during the next serious downturn, following the lead of Japan and China.

Citing Eric Balchunas's Bloomberg piece on the stock market being 'too big to fail,' Michael argues Fed equity purchases in a crisis are plausible and wouldn't shock him, pointing to Japan and China as precedents.

transcript

Michael Batnick: he gave all these rules or all these reasons why he thinks that the Fed could step in and buy stocks during the next downturn and I think he's absolutely right. I think it could happen. It would not shock me. People would be so angry. Japan already done this.

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Claim

Direct stimulus checks are the most effective way to fight a recession, even though the pandemic-era checks helped fuel the inflation that followed.

Michael argues sending people checks is the most effective recession-fighting tool, acknowledging the last round of checks contributed to painful inflation but framing that as a supply-chain problem rather than a reason not to do it again.

transcript

Michael Batnick: I know what happened last time. It caused all of the [ __ ] that we're living through right now. Inflation destroyed the fabric of our society. Hugely unpopular. Obviously it was terrible.

Claim

There's real merit to the classical view that recessions are healthy because they let unsustainable economic behavior 'die' so the economy can be reborn, but that shouldn't stop us from trying to ease ordinary people's pain.

Ben acknowledges the 'let recessions happen, take your medicine' school of thought has a point, while still favoring efforts to soften the blow for people whose lives get upended.

transcript

Ben Carlson: and things need to die in order in order to be reborn. And I totally get it. I'm not saying that I disagree with that sentiment entirely, but I am saying what if you could ease the pain a little bit and make people's lives a little bit less horrific.

Prediction◆

Because the stock market is now too systemically important to fail, future downturns will show up as fast flash crashes that force policymakers into quick action, rather than long grinding bear markets.

Extending his 'too big to fail' thesis, Michael predicts that with the left tail of a Great Depression-style collapse effectively removed, markets will instead punish bad behavior quickly, turning what used to be bear markets into flash crashes that force policymakers' hands.

transcript

Michael Batnick: Now here's my thesis of what this means. It means that markets will punish bad behavior way faster. And I think flash crashes now are not just going to be daily events. They're going to be bare markets. Like bare markets in the future are going to be flash crashes. We've already had them this decade essentially.

explains mechanism · 1extends · 2

Anecdote

The modern ability to spend discretionary money on recreational experiences like concerts is historically new — a century ago, ordinary people had almost nowhere to spend money on entertainment beyond something like the opera.

After being struck by the die-hard, decades-long devotion of Dave Matthews Band fans at a new Grand Rapids amphitheater, Ben reflects that this kind of recurring recreational spending simply didn't exist as an option 100 years ago.

transcript

Ben Carlson: It just got me thinking like I don't know 100 years ago the ability to spend money on things you cared about just didn't really exist. It's a relatively new phenomenon... like recreational spending. Yeah... Yes. It really is kind of new these days. What did you do 100 years ago? You went to the opera.

Highlight slides

Stock Market Is 'Too Big to Fail'✦ from: Because the stock market has become the backbone of Americans' retirement savings, it's plausible the Fed steps in and directly buys stocks during the next serious downturn, following the lead of Japan and China.Precedent: Japan and China✦ from: Because the stock market has become the backbone of Americans' retirement savings, it's plausible the Fed steps in and directly buys stocks during the next serious downturn, following the lead of Japan and China.Markets Are Now 'Too Big to Fail'✦ from: Because the stock market is now too systemically important to fail, future downturns will show up as fast flash crashes that force policymakers into quick action, rather than long grinding bear markets.Bear Markets Become Flash Crashes✦ from: Because the stock market is now too systemically important to fail, future downturns will show up as fast flash crashes that force policymakers into quick action, rather than long grinding bear markets.

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Broad stock ownership is historically recent (only ~4% of Americans owned stocks in the 1950s, 19% by 1983), and the resulting dominance of equities in household net worth is now permanent, not a cyclical peak that reverts.

Because the stock market has become the backbone of Americans' retirement savings, it's plausible the Fed steps in and directly buys stocks during the next serious downturn, following the lead of Japan and China.

Direct stimulus checks are the most effective way to fight a recession, even though the pandemic-era checks helped fuel the inflation that followed.

There's real merit to the classical view that recessions are healthy because they let unsustainable economic behavior 'die' so the economy can be reborn, but that shouldn't stop us from trying to ease ordinary people's pain.

Because the stock market is now too systemically important to fail, future downturns will show up as fast flash crashes that force policymakers into quick action, rather than long grinding bear markets.

The modern ability to spend discretionary money on recreational experiences like concerts is historically new — a century ago, ordinary people had almost nowhere to spend money on entertainment beyond something like the opera.

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