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...

 

 

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10PastMidnight's picture

Let me be the first to say, no shit.

The Gooch's picture

"darkness WARSHED over the dude..."

 

camaro68ss's picture

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

kaiserhoff's picture

Hollywood loves sequels.

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

 

THX 1178's picture

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

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)...

bania's picture

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

Plan A is obviously working.

Pinto Currency's picture

 

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

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.

espirit's picture

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

TwoShortPlanks's picture

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

DaveyJones's picture

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

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.  

FL_Conservative's picture

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

SilverIsKing's picture

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

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 

mrdenis's picture

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

DaveyJones's picture

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

Barbarus relics?

Babylon?

Blowtorch?

buttocks?

Bitchez?

Barbituates?

Bedwetting?

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.

Ham-bone's picture

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

Dr. Richard Head's picture

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

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

McMolotov's picture

Plan "C(onfiscate)."

Plan "C(ollapse)."

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

SamAdams's picture

when in doubt, always choose C?

kchrisc's picture

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

NotApplicable's picture

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

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."
Stoploss's picture

Anybody know if bond prices filed a flight plan??

DeadFred's picture

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

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.

cspg's picture

Plan B is to just keep on Givin'er

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.

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. 

 

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.

Poetic injustice's picture

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

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. :)

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?

Zero Debt's picture

Can we panic now?

101 years and counting's picture

truthteller!  you belong in prison for treason!!!

NotApplicable's picture

From what I read above, he just blamed DC.

Color me shocked.

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.