Former Fed Governor Warsh Admits "There Is No Plan B"

Tyler Durden's picture




 

At the very crux of the financial crisis, former Fed governor Kevin Warsh notes, "experimental extreme monetary policy," had the "right risk-reward", but, he warns, in this excellent (and somewhat chilling) discussion at the Milken Institute, "we left a financial crisis more than for years ago." While the politicians may 'prefer' to think of this as a crisis - and indeed "for them it is a crisis as they preside over an economy that refuses to grow," which has tended to lead to loss of office, but, Warsh condemns, "they have run out of excuses." Over the last several years, "[the Fed] has over-promised and under-delivered," and the bank's most important asset - credibility - is under attack.

The Fed has "enabled" Washington to do nothing, since the politicians expect the same "rabbit out of the hat" rescue that occurred in the darkest days of the financial crisis. This means no growth strategies ("the mix of policies has to be right") will occur. Since the financial crisis, Washington has done its level best to focus on GDP in the next quarter, or perhaps the election, and precious little beyond that short-term horizon. Warsh concludes, "There Is No Plan B."

The Fed has fewer degrees of freedom and the rest of Washington is not coming to the rescue; and furthermore "the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested - and will not prove to be successful."

The entire discussion is worthy of attention but Warsh's comments begin around 18:00:

...but "the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested - and will not prove to be successful."

 

...The Fed is taking on the problem of the shortfall in aggregate demand alone. Warsh does not believe that the Fed means to do this alone but their "good intentions" are simply not enough to get the economy to a 3-4% growth rate needed to create sustainable improvements in the labor markets.

 

... Warsh adds, "over the last several years, [the Fed] has over-promised and under-delivered," and the bank's most important asset - credibility - is under attack.

 

...The Fed has "enabled" Washington to do nothing, since the politicians expect the same "rabbit out of the hat" rescue that occurred in the darkest days of the financial crisis. This means no growth strategies ("the mix of policies has to be right") will occur - until the Fed draws the line.

 

...Since the financial crisis, Washington has done its level best to focus on GDP in the next quarter, or perhaps the election, and precious little beyond that short-term horizon. Warsh concludes, "There Is No Plan B." The Fed has fewer degrees of freedom and the rest of Washington is not coming to the rescue.

 

...In light of our status as reserve currency, the rest of the world's central banks feel empowered to match the Fed's efforts since "we do not act in a vaccuum" which due to economic and comptetive reasons, means "the US economy will not break out to the upside."

 

...It is not bad luck that is creating this medicority, it is bad policy

Then at 36:30, Warsh expands on the Fed's awful alternatives and his views on whether Bernanke's transmission channels via Animal Spirits and portfolio rebalancing will have any lasting impact...

 

 

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 05/01/2013 - 12:45 | 3518458 10PastMidnight
10PastMidnight's picture

Let me be the first to say, no shit.

Wed, 05/01/2013 - 12:46 | 3518462 The Gooch
The Gooch's picture

"darkness WARSHED over the dude..."

 

Wed, 05/01/2013 - 12:47 | 3518470 camaro68ss
camaro68ss's picture

There may be no plan B but Plan C is, print MOAR, print faster.

Wed, 05/01/2013 - 12:53 | 3518492 kaiserhoff
kaiserhoff's picture

Hollywood loves sequels.

   Thelma and Louise... putting the pedal to the metal.

 

Wed, 05/01/2013 - 13:00 | 3518537 THX 1178
THX 1178's picture

It all comes out in the Warsh. Turns out its all a Warsh.

Wed, 05/01/2013 - 13:01 | 3518556 SamAdams
SamAdams's picture

Clearly not part of the tribe, or if he is, isn't anymore...  No use for truth, send in the clowns (banzai's new Benyamin)...

Wed, 05/01/2013 - 13:09 | 3518590 bania
bania's picture

Who needs a plan B when the markets are at record highs?!?!?!?!

Plan A is obviously working.

Wed, 05/01/2013 - 13:28 | 3518601 Pinto Currency
Pinto Currency's picture

 

Warsh skipped the part explaining how printing money can ever create wealth and real growth.

Wed, 05/01/2013 - 13:33 | 3518710 ParkAveFlasher
ParkAveFlasher's picture

There's that word again, "growth", I'm not so sure that word means to the same thing to him as it does to me.

Wed, 05/01/2013 - 14:48 | 3519145 Victorio
Victorio's picture

Tell me you were thinking of this...    

http://www.youtube.com/watch?v=G2y8Sx4B2Sk

Wed, 05/01/2013 - 16:59 | 3519708 espirit
espirit's picture

Just add Warsh to the list of those to be purged.

Wed, 05/01/2013 - 19:47 | 3520408 TwoShortPlanks
TwoShortPlanks's picture

There is a Plan B....but you aren't going to like it.

Wed, 05/01/2013 - 15:36 | 3519386 DaveyJones
DaveyJones's picture

shit, even the kids know that the phrase "to infinity and beyond" are just the words of a plaything

Wed, 05/01/2013 - 15:29 | 3519343 Panafrican Funk...
Panafrican Funktron Robot's picture

Sounds like blame shifting to obfuscate what is blatently obvious; the Fed is exactly where it wants to be, and would greatly prefer to accelerate their wealth confiscation.  

Wed, 05/01/2013 - 13:24 | 3518681 FL_Conservative
FL_Conservative's picture

Whoops.....what was that brown thing that just breached a moment ago?

Wed, 05/01/2013 - 14:45 | 3519144 SilverIsKing
SilverIsKing's picture

And all along, I thought we were witnessing Plan B.

Wed, 05/01/2013 - 19:04 | 3520201 Zero Govt
Zero Govt's picture

we're not witnessing Plan B, we're on Plan F (QE6), which is identical to Plans B to F, print and debt-spend, print and debt-spend, print and debt-spend... it's an unrepayable debt hole worth looking at for its sheer size and incredulous maths anyone sane could justify such delrium/hopium/shit looks like 'a Plan for recovery'

Plan A of course was to be a good Regulator and prevent total banking apocalypse

The Fed fucked that up, and we''re now on Plan (bailout) F and that's yet more evidence the Fed is just one long fuck up of a clown show

nice to ser they keep their public-private sector jobs throughout this ongoing shambles. Never let it be said village idiots never get sacked for total abject continuous failure in Govt posts

Try the Free Market route Ben, it costs nothing and it's where your Ivy League bankrupt buddiess go to the fucking wall 

Wed, 05/01/2013 - 13:57 | 3518836 mrdenis
mrdenis's picture

Plan A to eternity ......................................

Wed, 05/01/2013 - 15:28 | 3519331 DaveyJones
DaveyJones's picture

Plan A is for asshole, now what is plan B for again?

Barbarus relics?

Babylon?

Blowtorch?

buttocks?

Bitchez?

Barbituates?

Bedwetting?

Wed, 05/01/2013 - 13:40 | 3518755 Rathmullan
Rathmullan's picture

Cool! Wet dream when word comes down that no hackademic nor larry summers/tttt-timmy type playa need apply. Instead some sort of Felix Rohatyn or even Volcker gets dusted off as "interim chairman" to unwind the mess that the BERNANK got us in.

Wed, 05/01/2013 - 13:03 | 3518557 flacon
flacon's picture

Sell in May?

Wed, 05/01/2013 - 13:25 | 3518684 NoDebt
NoDebt's picture

Quite possibly.

Wed, 05/01/2013 - 13:38 | 3518745 Ham-bone
Ham-bone's picture

speaking of Hollywood - Warsh looks just like Otter in Animal House??? 

Wed, 05/01/2013 - 12:54 | 3518497 Dr. Richard Head
Dr. Richard Head's picture

As is tradition.  No wait, Gold is tradition, printing is theft.

Wed, 05/01/2013 - 19:15 | 3520250 Zero Govt
Zero Govt's picture

Printng is theft, bailouts are corruption incarnate and fractional reserve banking is fraud

Ben's had years to work this out, typical academic he hasn't, so the headless chicken continiues to cluck around the farmyard forever blind and stupid gleefully accepting his public wages to stay/play dumb

Croneville 2013 ...same as it ever was

Wed, 05/01/2013 - 12:59 | 3518550 McMolotov
McMolotov's picture

Plan "C(onfiscate)."

Plan "C(ollapse)."

Plan "C(ave in a banker's skull)."  <---This would be the best option.

Wed, 05/01/2013 - 13:03 | 3518559 The Gooch
The Gooch's picture

I vote for "C"

Wed, 05/01/2013 - 13:06 | 3518569 SamAdams
SamAdams's picture

when in doubt, always choose C?

Wed, 05/01/2013 - 13:33 | 3518726 kchrisc
kchrisc's picture

Plan "C" is cool, but plan "G," banksters guillotined in front of their victims, well, that has my vote.             hujel

Wed, 05/01/2013 - 13:00 | 3518558 NotApplicable
NotApplicable's picture

Sorry, but that's Plan A. Please try again.

Wed, 05/01/2013 - 13:46 | 3518790 Jekyll_n_Hyde_Island
Jekyll_n_Hyde_Island's picture
Former Fed Governor Warsh Admits "There Is No Plan A or Plan B or Plan F, for that matter."
Wed, 05/01/2013 - 13:30 | 3518693 Stoploss
Stoploss's picture

Anybody know if bond prices filed a flight plan??

Wed, 05/01/2013 - 13:30 | 3518706 DeadFred
DeadFred's picture

It's FOMC day. You don't expect all those who got the early report to sit idle do you?

Wed, 05/01/2013 - 12:57 | 3518539 Ruffcut
Ruffcut's picture

Bullshit, plan B is buy everything with free money, printed out of dirty air that smells like ass. Anything worth a shit will be theirs. ONly you will have left is a worn pair of scorched panties.

Wed, 05/01/2013 - 13:02 | 3518551 cspg
cspg's picture

Plan B is to just keep on Givin'er

Wed, 05/01/2013 - 13:04 | 3518563 NotApplicable
NotApplicable's picture

Also Plan A.

Wed, 05/01/2013 - 13:11 | 3518608 sgt_doom
sgt_doom's picture

Somebody forget the so-called Dodd-Frank Financial Reform Act (or whatever the Frigg it's called)?

As usual, legislation is always the opposite of its title:  it establishes a covert bailout process from the Fed to the clearinghouse; counterparty risk is now transferred to the clearinghouse, and that is known as subsidizing; energy swaps, perhaps the only real form of hedging (and everyone should always be highly skeptical of that term, "hedging"), are transformed into energy futures, thus allowing for even more financial manipulation capabilities; ditto bonds to swaps, etc.

It should have been truthfully called, the Dodd-Frank Speculation/Financial Manipulation Consolidation Act --- and with this legislation it all is simply one giant neverending Ponzi.

Making this blog posting nebulous, at best.

Wed, 05/01/2013 - 13:56 | 3518818 Jekyll_n_Hyde_Island
Jekyll_n_Hyde_Island's picture

Those of us in finance weren't surprised at all by Dodd-Frank.

  A local mortgage tycoon and CEO/Owner said in 2009 said to me - "The entrepreneur will always outsmart the politician."  Dodd-Frank's initiatives began with the right intention, and ended as the sum of their parts.

  What are the parts?  A bunch of no-nothing politicians working off of bad data, writing bills out of the pockets of major banks and lobbies that got them there in the first place.

  It's all about allegiances, as the Durden's strive to point out daily, our elected officials don't have any allegiance  to the American people, they have allegiance to BAC and WELLS and CITI et al.

  The Sum?  Loopholes for mortgage companies to allocate funds from bottom level workers to newly designed securities.

  Get to work, Mr. Chairman. 

 

Wed, 05/01/2013 - 20:20 | 3520505 HardAssets
HardAssets's picture

"Washington" = politicians = poli sci majors/pre law

Ever try to talk to a politician/lawyer/liar about economics and finance ?  Complete glazed over blank look on their faces, followed by the toothy white caps smile, over anxiious handshake, and 'have a nice day !'

And people are suprised when they find out they don't even read the bills they sign into 'law' ?

America is screwed.

Wed, 05/01/2013 - 13:39 | 3518750 Poetic injustice
Poetic injustice's picture

Plan B is to put to use all the ammo DHS and other agencies have bought.

Wed, 05/01/2013 - 13:42 | 3518776 williambanzai7
williambanzai7's picture

PLAN B

Wed, 05/01/2013 - 13:49 | 3518794 Cognitive Dissonance
Cognitive Dissonance's picture

Bill. I thought we agreed not to publish that photo of me with that idiot's face pasted in.

I am quite proud of my new North Korean designed but (proud) American built ICBM. :)

Wed, 05/01/2013 - 15:53 | 3519471 therover
therover's picture

Are you Johnny Knoxville !? 

Wed, 05/01/2013 - 19:17 | 3520274 Zero Govt
Zero Govt's picture

I'd like to see Timmaya on Jackass taking some fast flying hard object between the legs ...can we vote on that?

Wed, 05/01/2013 - 12:45 | 3518460 Zero Debt
Zero Debt's picture

Can we panic now?

Wed, 05/01/2013 - 13:12 | 3518599 NotApplicable
NotApplicable's picture

It's recommended.

Wed, 05/01/2013 - 19:20 | 3520290 Zero Govt
Zero Govt's picture

It's too late.

Wed, 05/01/2013 - 12:48 | 3518461 101 years and c...
101 years and counting's picture

truthteller!  you belong in prison for treason!!!

Wed, 05/01/2013 - 13:13 | 3518602 NotApplicable
NotApplicable's picture

From what I read above, he just blamed DC.

Color me shocked.

Wed, 05/01/2013 - 13:17 | 3518639 KickIce
KickIce's picture

Pure arrogance.   I really wonder if they give a rat's ass at this point.  They know they can manipulate the market whenever needed and the average american doesn't care a long as the cushy government job pays and/or the EBT card works.

I firmly believe that it's a combination of ignorance and apathy that keep this ponzi alive. 

Do NOT follow this link or you will be banned from the site!