Operation Twist

Operation Twist was a joint Federal Reserve and Treasury policy that began in 1961. The goal was to "twist" the yield curve, pushing long-term interest rates down to encourage investment while keeping short-term rates high enough to discourage capital from flowing overseas. To do it, the Fed bought longer-term government securities while short-term debt was kept plentiful in the market. The name reportedly came from the dance craze of the era.

The Fed revived the idea in 2011 with its Maturity Extension Program, selling short-term Treasuries and buying long-term ones in an attempt to lower long-term rates after the 2008 financial crisis. In both cases, the measurable effect on long-term rates was modest. On Episode 049 of Between The Lies, Luke Tatum describes the original as questionable, with little clear evidence that it achieved its stated goals.

Austrian economists view Operation Twist as a textbook example of central planners trying to manipulate the price of time. Interest rates are supposed to coordinate savers and borrowers, reflecting real preferences about spending now versus later. When policymakers reshape the yield curve on purpose, they distort those signals. Businesses and households then make long-term decisions based on rates that don't reflect actual savings, which helps fuel booms that later turn into busts. Friedrich Hayek described this as a false signal: projects that look profitable at manipulated rates turn out to be unsustainable once the manipulation stops, and the correction arrives as a recession.

Why It Matters

Every few decades the same tool comes back with a new name, most recently as the "Treasury Twist." Knowing the history helps you recognize the pattern and avoid assuming this time is different. When interest rates are being steered rather than discovered, it pays to hold capital in a structure whose growth doesn't depend on whether the latest twist works.

Discussed in Between The Lies Episode 049: Scott Bessent's "Treasury Twist". Get the free toolkit at PerfectSpiralCapital.com/podcast.