Former Fed Governor Admits "Fed Is Not Data Dependent; It Is Propping Up Asset Markets"

Tyler Durden's picture

Submitted by Samuel Bryan via SchiffGold.com,

Earlier this year, Peter Schiff picked up on something few reported on when a former Federal Reserve president admitted the central bank created a phony wealth effect by pumping up stocks and other asset markets through its monetary policy. Several months later, analysis proved this was true, showing that 93% of the entire stock market move since 2008 was caused by Federal Reserve policy.

Today, the Fed continues to focus on propping up asset markets. Even a former Federal Reserve governor admits this is the case. Kevin Warsh appeared CNBC’s Squawk Box on Thursday and said the Fed isn’t really “data dependent” in the sense that it is looking at the overall economy. It is really market dependent.

"They look to me asset price dependent more than they look data dependent. When the stock market falls like it did in the beginning of this year, they say, ‘Oh, we better not do anything.’ Stock markets are now at career highs. I suspect when they meet over the course of the next 10 days they will suggest, ‘Oh, now they look like they can be somewhat more responsible.’ I don’t like changing policy meeting to meeting based on data, or even with what the S&P 500 is doing. I like making it based on what’s happening on the real side of the economy, and that has not been very convenient over the last six to nine months.”

Which is exactly what the market is pricing too...

Warsh went on to make another point that Peter has been harping on for months – the US economy isn’t in very good shape, and the Fed simply can’t raise rates.

The bad news is the real side of the economy in the US has deteriorated since September; quarterly earnings will now be down six quarters in a row. That’s the first time that’s happened outside of a recession. The Fed had a long window to tighten policy, to raise rates – 2013, 2014, 2015, and it strikes me they missed that wide-open window.”

Warsh’s comments lend credibility to a prediction Peter made on CNBC last month: the Fed will ultimately sacrifice the dollar on the altar of the stock market leading to a full-blown currency crisis.

Highlights from the interview:

“I must say I find their decision making in the last six or seven months puzzling…It is not obvious what their strategy is. I know…they say they’re data-dependent. I don’t know exactly what that means.”

 

They look to me asset price dependent more than they look data dependent. When the stock market falls like it did in the beginning of this year they say, ‘Oh, we better not do anything.’ Stock markets are now at career highs. I suspect when they meet over the course of the next 10 days they will suggest, ‘Oh now they look like they can be somewhat more responsible.’ I don’t like changing policy meeting to meeting based on data, or even with what the S&P 500 is doing. I like making it based on what’s happening on the real side of the economy, and that has not been very convenient over the last six to nine months.”

 

“In the darkest days of the crisis, when markets were falling, I have to admit getting asset prices up, trying to get markets up…nothing wrong with that. We’re supposed to respond to financial crises. That was seven and eight years ago. This preoccupation with your show, and with the Bloomberg screen, and with stock prices…that is not the right worldview for central bankers at a time like this.

 

“The bad news is the real side of the economy in the US has deteriorated since September; quarterly earnings will now be down six quarters in a row. That’s the first time that’s happened outside of a recession. The Fed had a long window to tighten policy, to raise rates – 2013, 2014, 2015, and it strikes me they missed that wide-open window.”

 

“I wouldn’t have raised rates in December. I find it odd that you had a window of two-and-a-half, three years with the supply side of the economy doing better, corporate revenues increasing, profits increasing, an economy that wasn’t great, but at least going in the right direction. I would have been much more worried in December than they.”

 

“Why is it that they [the Fed] are so worried about touching the balance sheet? Because they think that is what’s keeping asset prices up.”

 

“I would say the Fed’s policies have been running against capital investment, discouraging real investment in property, plant, and equipment, and software for several years.”

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ACP's picture

It's like a Captain Obvious commercial.

prefan4200's picture

There's nobody who's been on ZH over a week who isn't well aware of this. So an ex Fed-head said it. BFD.

NoDebt's picture

Obama had his little talk with yellen last month. The odds of a rate increase before the elections is zero. 

halfasleep's picture

sshhhh... you're killing the narrative

bamawatson's picture

but but but "fay-yur" diverse inclusive level playing field

Consuelo's picture

 

 

Almost...

 

It's a 'Schiffgold' commericial...

thetruthhurts's picture

Just BTFD's always. Everything is Awsome!

stitch-rock's picture

It's all about building it up, then to "pull it" to use a specific demolition term...

N0TaREALmerican's picture

Gonna be epic when "something happens" that causes rates to go up. 

Hope I'm dead, because epic could be ww3.

MFL8240's picture

This is a disgraceful abuse of power to artificaly prop up assets to try and rig an election.  We are on to you!

N0TaREALmerican's picture

If you can't abuse the power, maybe it's not really power. 

Clowns on Acid's picture

best thing you have ever written. Off of a low bar of course....ahem,.

ChargingHandle's picture

This is all about giving the optics that all is fine and dandy so the status quo Hillary can win. A market crash would all but guarantee a Trump Win. 

Farmer Joe in Brooklyn's picture

Maybe, maybe not...

It's really just self-preservation at this point. End game is near. Think this goes beyond politics at this point. When it blows, time for a reset.

Muppet's picture

TPTB must remain committed to QE,  as they have racked up excessive debts... They are all in.

The flaw of Keynes is the certainity that monetary stimulus will ALWAYS defeat a downturn...    that debt needed for stimulus will be recovered when recovery occurs.

The flaw is what if it doesn't work?   The debts are catastrophe. 

You cannot exit.   Japan can't exit nor can the U.S.   

 

So sadly, we are heading for more devaluation.  More debt.   Higher markets.

N0TaREALmerican's picture

Re:  The flaw of Keynes

This isn't Keynes, it's uncle Milton "there's no such thing as a free-lunch" Friedman.  

Chupacabra-322's picture

The Exchage Stabilization Fund.

Clowns on Acid's picture

Even higher gold and silver, if your case proves to be correct.

Midas's picture

I want to buy the dip, but there is no dip!

you enjoy myself's picture

Will some congress critter please remove the nebulous "maximize employment" mandate to the Fed?  It should have been obvious that can be taken to mean whatever anyone wants it to mean, but this really drives home the point that it might as well say "do whatevs".  Technically, the Fed is operating within its mandate (by worrying only about inflating the S&P) because how can anyone conclusively disprove that juicing markets doesn't help employment?

spartan117's picture

Zerohedge either controlled opposition, or being used like a $2 whore...

 

 

Clowns on Acid's picture

Mr Marshmellow , we all know that the Fed is printing money out of thin air and giving banks the $$ by buying T bonds but also MBS and corporates from the Banksters..... at prices that are very favorable to the Banksters.

So you provide no value by reiterating this. Tell us when and how the Fed stops doing this... or tell us that the Fed CANNOT stop doing this ... that is all the info that is needed.

 

offwirenews's picture

The entire world is putting the Centrally Planned Soviet Union to shame.

GunnerySgtHartman's picture

And when the collapse happens, it'll make the collapse of the Soviet Union look like a Sunday School picnic.

mary mary's picture

So much for Economics being science.

So much for "Financial Engineering" being engineering.

Chupacabra-322's picture

1.4 Quadrillion in Derivertives Exposure. This Corpse is dead & Collapsed.

Last of the Middle Class's picture

Just one more round of CPR & adrenalin. It'll come around /s

mrdenis's picture

You must buy now ....or forever be priced out of the market ...!!!!

Berspankme's picture

I dont believe we will see any big fall before end of year. Obama owns these fucks at the fed and nothing will be done to hurt his phony legacy. 

offwirenews's picture

You got it the other way around buddy

Clowns on Acid's picture

He does have it inverted, but Trump is going to fire them all anyway. Starting with the Yenta piece.

Don Sunset's picture

The Obamination himself owns the FED, IRS, DOJ (and FBI), DOD, and all the rest.  The highest ranking  FED workers (SES, O7 and up, DEPT heads, etc.) are a bunch of pussies.  I'm praying for TRUMP to arrive and fire all of those lame ass pussies.

RaceToTheBottom's picture

Buy the top.  Keep the FED from being lonely.

 

Fuku Ben's picture

This is ancient news. The Fed and all central banks that print fraudulent debt notes create a phony wealth effect just by existing. Having someone with a title that was involved in it confirm the fraud means practically nothing. When they're presenting an affidavit to be used as testimony in the Reserve Bank trials or testifying under oath at the trials of the other criminals involved in the ponzi it will mean something. Until then they're just confirming what everyone not involved in the ponzi here has already known and confirmed for years.

Dr.Engineer's picture

They'll do anything to get Hillary elected.

moonmac's picture

Poor working class Americans should have studied harder in school if they didn't want us to keep stealing from them. USA! USA! USA!

Consuelo's picture

 

 

It's an infomercial for Schiff gold.   And it kinda shows...

Bill of Rights's picture

Fuck off with the rate hike bs that ship sailed

InsanityIsWinning's picture

The fed's jobs are on the line if Trump is elected . . . the Donald already said he would replace her and he's also been listening to kudlow who recommends sweep them all out. . . they will do anything to keep the market up.  If Trump wins this may be the easiest short in a lifetime . . . after which Trump will be blamed . . and it will stick

Clowns on Acid's picture

Very true on a lot of levels. However Trump knows this and will be pointing his bejeweled finger at the Fed and Banks leverage. Absolutely the S+P drops with a hint of a Trump Presidential win. Maybe even after Hillary's DEM convention speech if its a typical Clinton 1990's speech.

When Reagan became President he had the inflation bogey that Carter left him as an excuse to raise rates and get the economy on firmer ground. Under Trump there is no CPI "inflation" bogey, just asset inflation which is a hard sell to be a bogeyman as people see it as their "wealth".

China, Mexico, EU, et al will be spending large on lobbyists and Media to bring The Donald to heel. Donald fools them all and signs his 1st Trade Treaty with Russia. Oil for US goods and services.

 

Chupacabra-322's picture

Like a giant Tsunami, the entire DOJ & FBI / SEC need to ve swept away into oblivion.

JailBanksters's picture

More like pumping up asset prices to protect banks profits.

alfbell's picture

They are propping up the market for the Dems to win the election. They are all behind Clinton. Let's pray for a MAJOR black swan, one that they can't do anything about, hide or gloss over, that sends it all down and keeps it down starting from the beginning of Nov all the way to the election. Let's also pray for more and more nasty stuff to be revealed to the public about Clinton. Pray to your gods people.

ThrownOffZHTwice's picture

The Fed has to prop up the stock market, because if price discovery ever returns, pension funds (who need 8% a year) would pretty much all collapse, bringing down the entire world economy.  

onmail1's picture

bondits & pirates 
Ho Hum 

messystateofaffairs's picture

FED is "secret" private crook owner dependent, scrap it is all we need to know.