What An Ex-FOMC Governor Really Wants To Tell You About The Fed

Tyler Durden's picture

Submitted by F.F.Wiley of Cyniconomics blog,

Hunting season is off to a good start this week, and I’m not just talking about deer hunting. It seems that former Fed officials declared open season on their ex-colleagues.

First, Andrew Huszar, who once ran the Fed’s mortgage buying operation, let loose in yesterday’s Wall Street Journal. Huszar apologized to all Americans for his role in the toxic QE programs.

And then today, the WSJ struck again, this time with an op-ed by former FOMC Governor Kevin Warsh.


Instead of excerpting the Huszar essay, we’ll only share the apt words of commenter Ernest Moosa, who wrote:

Every reader needs to understand and grasp what is being said here. We have been on the wrong economic path for five years, and without the desired results, our leadership says “FULL SPEED AHEAD”. We have wasted so much time and money that future generations will point to us and say this is how a great country can be destroyed in less than a decade with no shots even being fired. Deplorable.

Moosa hit the nail on the head, and we recommend reading the op-ed in its entirety if you haven’t already done so.

As for Warsh’s editorial, it was tough to read without wondering what he’s thinking. Warsh is a former Morgan Stanley investment banker whose 2006 to 2011 stint on the FOMC spanned the end of the housing boom and the first few years of “unconventional” policy measures. After such a solid grounding in the ways of the Fed and Wall Street, he recently morphed into a critic of the status quo. His criticisms are welcome and we believe accurate, but they’re also oh so carefully expressed. They’re written with the polite wording and between-the-lines meanings that you might expect from such an establishment figure. He seems to be holding back.

So, what does he really want to say?

Here are our guesses, alongside excerpts from the editorial on each of nine topics that Warsh covered:

Quantitative easing

“The purchase of long-term assets from the U.S. Treasury to achieve negative real interest rates is extraordinary, an unprecedented change in practice since the Treasury-Fed Accord of 1951.

The Fed is directly influencing the price of long-term Treasurys—the most important asset in the world, the predicate from which virtually all investment decisions are judged. Earlier this year the notion that the Fed might modestly taper its purchases drove significant upheaval across financial markets. This episode should engender humility on all sides. It should also correct the misimpression that QE is anything other than an untested, incomplete experiment.”

What he really wants to say:

We’d all be better off if the central banking gods (myself included) hadn’t been so damn arrogant to think that we actually understood QE. We don’t, and it never should have been attempted.

The Fed’s focus on inflation

“Low measured inflation and anchored inflationary expectations should only begin the discussion about the wisdom of Fed policy, not least because of the long and variable lags between monetary interventions and their effects on the economy. The most pronounced risk of QE is not an outbreak of hyperinflation. Rather, long periods of free money and subsidized credit are associated with significant capital misallocation and malinvestment—which do not augur well for long-term growth or financial stability.”

What he really wants to say:

The inflation target is stupid. It’s not the CPI that’s killing us, it’s the credit booms and busts. The best way out of this mess is to lose the inflation target and go back to the old-fashioned approach of “taking the punch bowl away when the party gets going.”

Pulling off the exit from extraordinary measures

“[T]he foremost attributes needed by the Fed to end its extraordinary interventions and, ultimately, to raise interest rates, are courage and conviction. The Fed has been roundly criticized for providing candy to spur markets higher. Consider the challenge when a steady diet of spinach is on offer.”

What he really wants to say:

Pundits who praise the courage of our central bankers are clueless. The true story is that we consistently take the easy way out. If the current cast of characters wanted to show courage, they’d man up and replace the short-term sugar highs with long-term thinking.

The Fed’s relationship to the rest of Washington

“The administration and Congress are unwilling or unable to agree on tax and spending priorities, or long-term structural reforms. They avoid making tough choices, confident the Fed’s asset purchases will ride to the rescue. In short, the central bank has become the default provider of aggregate demand. But the more the Fed acts, the more it allows elected representatives to stay on the sidelines. The Fed’s weak tea crowds out stronger policy measures that can only be taken by elected officials. Nobel laureate economist Tom Sargent has it right: ‘Monetary policy cannot be coherent unless fiscal policy is.’”

What he really wants to say:

And if we don’t man up, you can count on Congress to continue with its egregious generational theft and destroy our nation’s finances, just as me, Stan and Geoff have been warning.

Who benefits from QE and who doesn’t?

“Most do not question the Fed’s good intentions, but its policies have winners and losers, which should be acknowledged forthrightly.

The Fed buys mortgage-backed securities, thereby providing a direct boost to balance sheet wealth of existing homeowners to the detriment of renters and prospective future homeowners. The Fed buys long-term Treasurys to suppress yields and push investors into riskier assets, thereby boosting U.S. stocks.

The immediate beneficiaries: well-to-do households and established firms with larger balance sheets, larger risk appetites, and access to low-cost credit. The benefits to workers and retirees with significant fixed obligations are far more attenuated. The plodding improvement in the labor markets offers little solace.”

What he really wants to say:

Unbelievably, my ex-colleagues still don’t acknowledge their policies are killing the middle class to the benefit of the plutocracy. Their silence on this is wholly unacceptable and has to stop (and so do the policies).

Domestic versus global policy considerations

“[T]he U.S. is the linchpin of an integrated global economy. Fed-induced liquidity spreads to the rest of the world through trade and banking channels, capital and investment flows, and financial-market arbitrage. Aggressive easing by the Fed can be contagious, inclining other central banks to ease as well to stay competitive. The privilege of having the dollar as the world’s reserve currency demands a broad view of global economic and financial-market developments. Otherwise, this privilege could be squandered.”

What he really wants to say:

We really need to climb out of our shell and look at things from a global perspective. The rest of the world knows that we’re selling a bill of goods and won’t continue buying it forever. If we don’t change, you can say goodbye to the dollar.

Forward guidance

“Since QE began, Fed policy makers have tried to explain that asset purchases and interest rates are different. Hence their refrain that tapering is not tightening, and that very low interest rates will continue after QE. Investors do not agree. Once the Fed begins to wind down its asset purchases, these market participants are likely to reassert their views with considerable force.

Recently, the Fed has elevated forward guidance as a means of persuading investors that it will indeed keep interest rates exceptionally low even after QE. Forward guidance is intended to explain how the central bank will react to incoming data. Fed projections for example, may show below-target inflation and a residual output gap justifying very low interest rates several years from now. But words are not equal to concrete policy action. And the Fed hasn’t received many awards for prescience in recent years.”

What he really wants to say:

Forward guidance is a load of crap. First, you won’t convince the market of any of your dumb ideas. Investors can and will think for themselves. Second, talk is cheap. And talk that’s based on the Fed’s ability to foresee the future? C’mon now, that’s ridiculous.


“[T]ransparency in communications about future policy is not a virtue unto itself. The highest virtue is getting policy right. Given manifest uncertainties about the state of the economy, oversharing policy deliberations is not useful if markets are led astray, or if public commitments reduce policy makers’ flexibility to call things the way they see them.”

What he really wants to say:

Transparency, shmansparency. I’ve had it up to here with taper, untaper, maybe taper, maybe not taper. I’ll trade a transparent central bank for one that knows what it’s doing any day.

Obama’s nomination of Janet Yellen as the next FOMC chair

“The president has nominated a person with a well-deserved reputation for probity and good judgment. The period ahead will demand these qualities in no small measure.”

What he really wants to say:

The president made a bad choice.


These are only our guesses, not actual thoughts from Kevin Warsh, who hasn’t told us what he really wants to say.  We don’t even know if he hunts.  (We’re guessing no.)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
scrappy's picture

What he was really trying to say.

"I can't sleep at night, please don't kill me."

Cover meet Ass

uncle.bigs's picture

Dude married into the Estee Lauder fortune.  He sleeps quite well at night on a bed of fresh greenbacks and lavender scented pussy.

El Hosel's picture

If it smells like cologne, leave it alone... If it smells like fish... well, you know the rest.

Titus's picture

Just another asshole who needs to start sucking cock rather than getting serviced by $1000 hookers.

So What's picture

something bigger is afoot when the jews and their servants are turning their back on their overlord.

economics9698's picture

The time to hang these MF's must be getting close.

New England Patriot's picture

What he really wants to say:


"By the time the shooting stops, nobody is going to remember that there was a Fed."

johny2's picture

They are realising that the truth is being revealed, exponentially. Fact that the war in Syria had to be postponed due to the huge oppostion of the populace in the UK, must have been a huge shock. The Internet is too big to buy and control, unlike the old fashioned MSM.

outamyeffinway's picture

Well it's settled then. No hyperinflation for us. Hyperinflation is only for the assets of the .01%. We boil in the stew for the rest of our lives. How exciting :\

Kirk2NCC1701's picture

Either Kevin was all Warshed up before he left, or he will be after this article.

But at least he's rich, and will be comfy, cozy and safe when TSHTF.  He and his shotgun are... pumped.

Colonel Klink's picture

If it smells like fish.....uhhh....you cut it's head off, then bury it in the dump?

economics9698's picture

"If it sleeps like cologne, better leave it aloneIf it smells like fish, eat it like a dish!!!"

Kirk2NCC1701's picture

"If she smells sweet of cologne, give her the bone.  If she smells like a fish, don't eat that dish!" -Kirk

These are binary decisions regarding health, hygiene and potentially 'Risky Business'.

RaceToTheBottom's picture

I did not know that, but once you said that, it becomes believable.  Everything the guy says sounds like he is trying not to make a mistake rather than do the right thing. 

  • He marries what someone told him he should want.
  • He works for a bankster firm because it was something he should do.
  • Now he writes this info, so he can say I warned them....

Bright, Balless fluff-boy, deserves to be fluff-boy for Bubba in the big house.

Groundhog Day's picture

If i could ask just one question to either of these fuckers it would have to be:

Do you think GOLD and Silver are money?

DeadFred's picture

What he's really telling you is that there's war in the nether regions and the White Dragons are taking on the Cabal. TPTB don't play we'll with others.

XenoFrog's picture

All is well until it isn't. Then it gets really bad really quickly.

starfcker's picture

look at what else is going on at the same time. the purge of top military brass and they just set down some secret service, all for a variety of supposed indescretions. with an all powerful NSA and DHS and XE, do you really think guys like that (the ones with the guns) aren't under more scrutiny than anyone else? google is a mutherfucker. log on to anything like this place, you're not going to be trusted with a gun anymore. you gotta go. the fears of an inside job probably top the list of bad outcomes these rodents fear. some of these guys might have actually believed we could have a service economy, with no production and it could work. they are figuring out not enough jobs cutting bill gates's grass or giving holder facials to keep everyone busy, and they are getting nervous

Hobbleknee's picture

Exactly.  I would hardly call these apologetic propaganda pieces "hunting season."

Running On Bingo Fuel's picture

Commercials are short and getting squeezed to the point of tears. A call to their ex-FED buddies, a couple hookers, kilo of coke, and an envelop of cash and the ex-feddies sing like chicken little.



NOTaREALmerican's picture

Hey,  this guy makes it sound like the top 10% aren't entitled to keep their standard of living.

We didn't spend the last 60+ years creating all these Big-Gov and Big-Corp scams for nothing.  

Ness.'s picture

I'm an excellent driver...

I'm an excellent driver...


Uh oh, fifteen minutes to Judge Wapner...



buzzsaw99's picture

Rats leave the ship then squeal like rats.

Overfed's picture

Shit must be getting real close to the fan.

Anusocracy's picture

This is normal.

In any gang, former lower thugs will often exhibit contrition for what they've done. It's fairly common with ex-military.

Offthebeach's picture

He shouldn't retire to Mexico, and should avoid people with ice climbing axes.
( not that a feddy with a ice axe in its reptile skull is a bad thing. )

bagehot99's picture

What he really, really wanted to say:

This fucker is gonna blow.

NoDebt's picture

Or perhaps what he was really saying was "I'M gonna blow.  Out the door to my next job, where I pretend I hated this stuff because it's fashionable to say so."

ziggy59's picture

What took him so long?

ebworthen's picture

What he really wanted to say:

"We had absolutely no fucking idea what we were doing, but we made good coin doing it."

22winmag's picture

Just like in Germany at the end of WWII, if you were a Nazi you ran like hell or tried to strike a deal by turning in your former pals.

Hail Spode's picture

In recognition of his contrition, when the time comes perhaps this one wiil get hung with a new rope, and in a town that has cute lamp posts.  Maybe Hershey, PA.

NoDebt's picture

Mmmmmm.... chocolate.  

I was there a couple weeks ago.  Indeed, the lamp posts do look sturdy enough for such duty.  

fooshorter's picture

Hung?! Hung?!! I guess there is waiting list for the gullotine, but Im sure we can work him in.

piceridu's picture

As LOP aptly says: "Roll out the guillotines".

Kirk2NCC1701's picture

As I indicated the otehr day, had a T-Shirt made that says:

ROTMFG!  ENWC.  [big font]

* Rool Out The MF'ing Guillotines, Else Nothing Will Change [small font]

Deo vindice's picture

Be ready for some questions.

People may have a bit of trouble understanding how you 'rool' out something.

Temporalist's picture

How dare them attack Time's Person of the Year 2009!!!  Obama was 2008 and 2012 so he must be doing something right!  I'm never reading ZH again because they are just mean and wrong and conspiracy terrorists fear monger hater 1%er Ayn Randian Tea Party gold misers who can't sail, kayak, row, or pilot any water vessel for shit!

SWCroaker's picture

You forgot "silver grubbing".        We always get left out.

imbtween's picture

I'm sure Mr. Warsh's deep feelings of contrition will sway the hungry mobs and they will not eat him.

rustymason's picture

A people persecuted for over 2000 years is doing something wrong.

ebworthen's picture

And God save us all; the Mercedes Santa commercials are playing, along with the countdown to Christmas and the Ouija board predictions about holiday sales - and the "you're a deadbeat parent if your little kids don't get a new iPad or Cell Phone under the tree" ads!

Kirk2NCC1701's picture

On top of that, we are seeing a record number of TV shows dealing with the Occult (Zombies, Witches, Ghosts, Demons, evil Aliens, and "Face Off" where they try to outdo each other to create the most revolting demonic faces and creatures, and claim it as "art").  WTF!?  Has Hollywood/Burbank lost it completely?

Also, as a subtle subtext perversion to the social meme, in the latest episode of Black List, they portrayed libertarian people as 'terrarists', if you paid attention to the wording -- something to the effect of:  "We will go after the corporate crooks who have gotten rich and stolen from the middle class."  The fact that a couple of planes were blown up (one fell from the sky at the start of the show, and another was blown up on the tarmac before it loaded), and they linked active dissent with such acts of blind violence, sets the stage for more PR against all objectors to TPTB.

Clearly, the insinuation is that at some point, smart, well-educated Middle Class people, who decide to take Action, are pre-emptively branded as 'Terrarists'. 

At t-shirt that says "ROTMFG, ENWC (Roll out the... else nothing will change)" will probably land you under active surveillance.  Be sure to wear (flash) it discretely.  ;-)

RaceToTheBottom's picture

If you challenge the existing norm, no matter how corrupt, you are a 'Terrarists'.  Especially if you are from earth.

Gaurden's picture

stop trusting what rich people say you dumbasses. They fuck us every time and this ones no different than the rest.  

if he wasnt still in their posse he'd probally be dead or at least massively shamed by now.


NoDebt's picture

There's the comment I was looking for.  I'm not buying these guys coming out recently with their crocodile tears, either.  They are working an angle.  Don't know what it is, but there's an angle.

If you knew stuff was going to blow would you plaster your name all over the WSJ or NYT as being associated with it only shortly beforehand?  Hell no.  You'd shut your mouth and sneak out the back through the fire exit, hoping nobody remembers you were there.

"I was for it before I was against it" is the phrase that keeps going through my head.  No way this is 'as-advertised.'  No way the Fed is suddenly going to get religion and do a massive policy reversal.  

TaperProof's picture

The feds 100 year charter is up this year.. they might be throwing in the towel on purpose fully expecting the chaos that will follow.