Last Fed Hawk (Excluding The Drama Queens) Kevin Warsh To Leave Fed March 31

Tyler Durden's picture

Kevin Warsh, the last real hawk at the Fed, excluding the primadonnas who keep bitching and moaning against QE2 yet continue to vote with the Chairsatan, has announced he will leave the Fed.

Below is out post that highlighted Kevin Warsh's vocal criticism of Bernanke's genocidal policies.

Betting On An Infinite Bernanke Put? Not So Fast, Says Fed Governor Kevin Warsh

Last week's Op-Ed du semaine was Ben Bernanke's WaPo glowing
endorsement of the Fed market put, whose sole purpose was to remind
stocks, which ended up drooping on the day QE2 was announced, that
Bernanke will stop at nothing to achieve his now
primary goal (as loosely interpreted under the Fed's broad, and
unsupervisable, mandate) - surging stock prices. This week, however, may
likely belong to Fed Board Governor, and former member of the
President's working group on capital markets, Kevin Warsh. In an Op-ed just released in the WSJ,
Warsh, whose series of accomplishments include being the youngest ever
appointee to the Fed BOD at 35, and being married to Jane Lauder of
Estee Lauder fame, writes "Lower risk-free rates and higher equity
prices—if sustained—could
strengthen household and business balance sheets, and raise confidence
in the strength of the economy. But if the recent weakness in the
dollar, run-up in commodity prices, and other forward-looking indicators
are sustained and passed along into final prices, the Fed's price
stability objective might no longer be a compelling policy rationale
. In
such a case—even with the unemployment rate still high—we would have
cause to consider the path of policy. This is truer still if inflation
expectations increase materially.
" Translation: if
gold continues to exhibit a beta > 1 w/r/t ES, then we are screwed,
and all Fed policies will have failed. Elsewhere, look for most
commodities to open limit up again tomorrow for the nth day
in a row as inflation expectations continue to "increase materially" and
more and more Fed members understand just what Warsh is saying.

Much more in this surprisingly austere statement by one of the fresher voices at the Fed:

focusing on the "seller" in the critical economic equation which the
Fed now believes is only defined by end consumer demand, a premise that
was thoroughly destroyed earlier by Sean Corrigan:

Policy makers should take notice of the critical importance of the
supply side of the economy. The supply side establishes the economy's
productive capacity.
Recovery after a recession demands that capital and
labor be reallocated. But the reallocation of these resources to new
sectors and companies has been painfully slow and unnecessarily
interrupted. We are feeling the ill effects.

On austerity: look for Krugman and fluffer DeLong to go apeshit over this:

Fiscal authorities should resist the temptation to increase government
expenditures continually in order to compensate for shortfalls of
private consumption and investment.
A strict economic diet of fiscal
austerity has greater appeal, a kind of penance owed for the excesses of
the past. But root-canal economics also does not constitute optimal
economic policy.

On consumer deleveraging:

The deleveraging by our households and businesses is not a pattern to be
arrested, but good prudence to be celebrated.
Larger, more liquid
corporate balance sheets and higher personal saving rates are the
reasonable and right responses to massive government dissaving and
unpredictable government policies. The steep correction in housing
markets, while painful, lays the foundation for recovery, far better
than the countless programs that have sought to subsidize and temporize
the inevitable repricing. It is these transitions in our market
economy—and the adoption of pro-growth fiscal, regulatory and trade
policies—that lay the essential groundwork for greater, more sustainable

Stunningly insightful words for
a Fed member. They beg the question, however, why was consensual
restructuring not on the table when TARP was being proposed? As we have
said so many times, the US banks would not have collapsed had
their balance sheets been reorganized, even as their operations
continued (totally separate from bank liabilities). Now it is too late,
which is why a reversion will necessarily require a complete financial
reset, and all those who are calling for a methodological process to go
back to where we were in the days of late September 2008, when there
still was hope, are naive idealists. In this context a return to a gold
standard would not make sense at the current price of gold... It would,
however make sense, were gold to be priced at around $5,000, or more.

Yet the most stunning tidbit of clarity and lucidity by Warsh is the following:

week, my colleagues and I on the Federal Open Market Committee (FOMC)
engaged in this debate. The FOMC announced its intent to purchase an
additional $75 billion of long-term Treasury securities per month
through the second quarter of 2011. The FOMC did not make an
unconditional or open-ended commitment. I consider the FOMC's action as
necessarily limited, circumscribed and subject to regular review. Policies
should be altered if certain objectives are satisfied, purported
benefits disappoint, or potential risks threaten to materialize.

risk-free rates and higher equity prices—if sustained—could strengthen
household and business balance sheets, and raise confidence in the
strength of the economy. But if the recent weakness in the dollar,
run-up in commodity prices, and other forward-looking indicators are
sustained and passed along into final prices, the Fed's price stability
objective might no longer be a compelling policy rationale. In such a
case—even with the unemployment rate still high—we would have cause to
consider the path of policy. This is truer still if inflation
expectations increase materially.

The Fed's increased
presence in the market for long-term Treasury securities poses
nontrivial risks that bear watching. The prices assigned to Treasury
securities—the risk-free rate—are the foundation from which the price of
virtually every asset in the world is calculated. As the Fed's balance
sheet expands, it becomes more of a price maker than a price taker in the Treasury market. If
market participants come to doubt these prices—or their reliance on
these prices proves fleeting—risk premiums across asset classes and
geographies could move unexpectedly.

last sentence is the ultimate kicker as it captures precisely what will
happen when the realization that things are slipping outside of the
Fed's control spill over to Wall Street (and then to MainStreet). As
Warsh says: "The Fed can lose its hard-earned credibility—and monetary
policy can
lose its considerable sway—if its policies overpromise or under
deliver." As the bulk of the world, and the vast majority of the
population already have no faith in the Fed, the acknowledgement that
this process can capture everyone, including a ponzified Wall Street,
whose fortunes are embedded in the proper functioning of the Fed, should
be cause for huge alarm. Since if even the Fed realizes that the risk
that the world will look beyond the fake price facade created by
Bernanke exists, it is only a matter of time before the transition from
hypothetical to real is completed.

As Warsh's words resound with
more members of the FOMC and Fed BOD, and especially as 3 new hawks join
the voting ranks next year, not to mention Ron Paul's new role, all those betting that "EVERYTHING" will go up under QE2/3/4/etc, may want to promptly reevaluate their thesis...

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jus_lite_reading's picture

Me thinks internal tensions are running high... a collapse of the Fed?

eckart's picture

QE3 to be confirmed in May then...BTFD

Cash_is_Trash's picture

Can't we all just get along and monetize our problems away?

I swear, this QE will be entirely different; this time the economy will actually improve.

TruthInSunshine's picture

Just in time for what may be the largest, economic-legal catastrophe in...well, a long, long time?


The Rise and Fall of a Foreclosure King
papaswamp's picture

Time to get out while the gettin is good. Don't want to be around when the masses come to take the fort.

RobotTrader's picture

Quant Sleaze is lifting all boats.

Especially consumer stocks.  Now that Warsh is out of the way, new highs on the indexes is assured.

WFMI on a tear today, up $6

Amazing how a 200,000 SF grocery store can do so well, and their items are 2x as expensive as Kroger.....

raya123's picture

I suggest you pay attention to the euro instead of whole foods market.  The U.S. market will undoubtedly follow it lower.

vote_libertarian_party's picture

I just saw the movie Inside Job.  It's about the subprime fiasco and how the various rats made out.


One scene was about Mischkin being so wrong and how he bailed right as the collapse happened.

Horatio Beanblower's picture

Was Mischkin the asshole that wrote the rosy report for the Icelandic banks and economy?  I think I saw him being interviewed in a trailer for the film.

Prof Gulliver's picture

He's lucky they didn't give him a blindfold and cigarette.

TruthInSunshine's picture

He plans on having Geithner start his car for him from now on (as many do).

Fortunes Favor's picture

The inflation behavior described by Warsh is consistant with our belief Phase Two of the secular bull market in Gold has begun. 

Precious Metals Outlook: Newmont(NEM) Takeover of Fronteer(FRG) Evidence of Phase II @



Millennial's picture

I love this video.

It talks about the US economy.

Though I imagine they are being generous about the economic timeline.

AnarchoCapitalist's picture

Great. Why was he going along all this time? Why was he not a vocal critic from the start? Maybe he has seen the err of his ways. Maybe he has seen the damage that the Fed's policies can cause. Is this just a simple "Let me set the record straight" before he leaves - in order to secure a more favorable legacy (when it all comes crashing down)?

SheepDog-One's picture

Get out while the gettin's good!

Popo's picture

Rats, sinking ships, and all that.

lesterbegood's picture

I concur.

Those "deep pools" must be getting pretty treacherous.

There be sharks in them there pools.

Bon appetit!

TruthInSunshine's picture

And in other news:

02-10 11:58: Dudley to be reappointed to NY Fed, sources say

Whew! That was a close one! I'm glad Goldman & JPM can rest comfortably now, knowing their man will be back in the money-passing-out role to Primary Dealers.  Dudley to be reappointed to NY Fed, sources say
Sutton's picture

Psychopathic leaders always purge/slaughter their courts before launching yet another mad scheme(to fix the consequences of the previous mad schemes).


hambone's picture

Still seems no one can answer the central question (below)?  Where will all the money to buy US T's at current rates come from if not the Fed (and have no negative impact on other asset classes)?  Absent an organic answer, inflationary / hyperinflationary hedges seem the only answer?

US now needs to roll and create about $5T annually in Treasuries ($3T rolling over/yr based on $15T debt @ 5yr average maturity + $2T in new issuance).  That is $100B a week total.  Fed "only" has $900B Jan through June w/ POMO and rollover (that's bout $50B a week).  Who's going to buy the other $50B / weekly now through June...and then $100B+ weekly after that???  And at what rate?  There are Trillions the second half of '11 and $5T+ missing in '12 at anything like these rates to keep this going w/o QE3 or interest rates (and interest payments) going substantially higher (like $750B/per anum interest cost at long term average of 5%)?  If rates do increase to 5% average, total annual borrowing needs rise to $5.5T, etc. etc.

I'd think we can't do QE3 without making the world burn w/ inflation but can't not do QE3 without interest rate explosion eating 1/3rd+ of all tax revenue?  Again, obviously I've completely missed something here??? 

Either we're t-minus 4 months from interest rate shock or an impending March or April QE3 bigger than QE2 and unending flood of dollars round the world???

Bryan's picture

I vote for the unending flood of dollars.  Benny seems to have only one answer to all questions.

ConfusedIdiot's picture

Great question HB. Maybe that 1 trillion in Euros the ECB will be printing over the next 6 months to paper over the banks will like a magnet to iron be drawn to the UST Deficit Bonds. Regards, CI

Shameful's picture

Bull, they can't pull the QE plug. Who is going to buy all the mounds of paper pouring out of the Treasury? The Chinese are a little full and the Underwear Gnomes are on strike.

If the Fed keeps QE then it eventually nukes the dollar. If the Fed stops QE then interest rates moonshot and the US defaults, nuking the dollar. The dollar is worth what faith people have in it, and faith will be running low when the US can't muster enough to send in an interest payment.

So they will kick the can. So I fully expect a massive market turn down in the next few months to scare money out of commodities and draw money into Treasuries. Not a permanent fix, but enough to squeeze out at least another year of record bonuses. Guys who wait it out in the metals will get stung if they don't sell on time, but if they sit tight will be totally fine.

Reese Bobby's picture

Warsh is not to be admired, in my opinion.  Seems like the concentration camp guard who didn't kill anybody he didn't really have to... 

gwar5's picture

If the Hawks leave, we know what is coming next.

AGoldhamster's picture

Chairsatan ... TD that made my day ... ROFL

Lapri's picture

I'm puzzled. Why does Tyler seem to think highly of this guy? He speaks and writes as if he's a hawk, with high-sounding words. But he has never once actually cast the NO vote. Never.

chelonia1663's picture

We are in a worldwide economic crisis AGAIN, and “MONEY” is at it’s very center AGAIN.  And we have let it happen AGAIN. It is a crisis of money management, and the result of permitting ruthless private international financiers to gain and keep control over “OUR” money AGAIN.  Yes, money is a sovereign right that arises from the sovereign right of an individual to enter into contracts.  By allowing that right to be usurped by private banking interests we have lost the greatest power a free and democratic people can have – economic power. I would say that 90% of all the people are confused about money. About what it is now, where it comes from, but more importantly, what it should be, and where it should come from.


Wealth often confused with money, can take almost any form, and historically it has, from gold to cattle, from grain to salt, and water to land.  These are all forms of wealth, commonly called commodity wealth with the exception of land, which is known as “real wealth” or “real estate” because it has certain distinctions that commodity wealth does not.  Notes or deposit receipts (money) for grain, metals, gems, or other items of value have served throughout time as a safer, more convenient means of transferring payment.  Here the reputation of the issuer was the key factor in its acceptance.


But the point here is that “money” is a medium, or means of exchange that takes the place of the items being exchanged. When items of value are exchanged that is called “barter”. Money is used in place of barter. Money is not the things themselves. For money to retain it´s integrity it should be free of any intrinsic manipulation which one of them is interest.


Mathematically Perfected Economy NOT ONLY restores our sovereign right to issue our own promissory notes to each other, but also offers a money management system at the same time.