Dr Kevin And Mr Warsh: A Former Fed Governor Exposes The Fed

Tyler Durden's picture

Ex-Fed Governor Kevin Warsh provided much food for thought during his appearance on CNBC this morning. Over the course of the following clip, he addresses concerns from just how bad the reality of the global economy must have been for Bernanke and his merry men to have gone "all-in" aggressive - reflecting on this as a panic-like reaction during times now where we are not panicking, the ineffectiveness of QE3 "iPhone 5 will do more for the real economy than QE3", fears over how bad this could get as "there is a reason 'exit' is a four-letter word." Warsh notes the paradox of Bernanke "trying to pull a rabbit out of a hat' each time the economy loses control while calling for Washington to do more - as the politicians know "there's not much we need to do, Bernanke has our back." We are not in a panic, we are in a lousy recovery and when asked what he would do, Warsh added that there is a ton Washington can do - and the key difference between him and Bernanke is the ranking of costs and benefits - indeed with WTI already over $100/bbl, the costs are rising.

On Bernanke's exit strategy: "In the history of central banks, getting out is harder than getting in"

His comments are far-ranging but mostly 'disappointed' in our view that Bernanke has done this. "We are running these program like infomercials" is how he describes the short-term actions of the Fed, but the following conclusion is perhaps the most humbling for any and every bull long-only manager who has backed up the truck of unreality:

Look at the markets now; asset prices continue to melt up. When asset prices are driven less by fundamentals and more by speeches and policies coming out of Washington, you're taking risks. Risks are highest in the economy when measures of risk are he lowest; and when I look at the VIX at this level and you compare that to the headlines you read every morning, they certainly don't seem in sync, and that's exactly when shocks happen.



and one more shot across the bow:

"If they believe the economy and prospects were moving even slowly to a higher path, I don't think they would have decided to be nearly as aggressive."


"I don't like the bang for the buck. I'm not persuaded by the efficacy. I think there are people out there, perhaps even of prevailing opinion in Washington, who think the balance sheet can grow another $3 trillion to $5 trillion to bring us to optimal policy.


The reason I don't believe much of that, who are we buying this debt from? Last year, the Federal Reserve bought 77% of all of the debt that Tim Geithner issued. It doesn't mean that the Federal Government doesn't have an important role to play; but our largest buyers of securities, domestically and overseas, they aren't fooled."

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GetZeeGold's picture



Benedict Arnolds....string em up!

Precious's picture

Any person who lives in the group think of DC, and has a magic machine that prints money at will, would be pulling the lever too.

Bernanke is only human.  He's just another little piece of modern shit unable to control his natural, narcissistic human impulses.

Pladizow's picture

Only when you realize that the choices being made by Ben & Obummer are to destroy America, do things start to make sence!

madcows's picture

Why would ben want to destroy the economy? He's got a shitload of treasuries on the books. If the US defaults, he's bankrupt.  I think it's much more nefarious.  Benny is the bank.  He wants more money.  Obama wants to be re-elected.  Printing makes everyone happy, Obama gets re-elected.  Obama's re-elected and Benny keeps his job.  Benny keeps his job and gets to continue stealing from the American people.

Off with their heads.

LMAOLORI's picture



I think both can be true at the same time. We don't have to default to be destroyed. When the interest rates rise alot of people at the top will make alot of money but the country will be destroyed for the average person who has to pay for it all.  During the last great depression there were still people who had money and jobs. The banks and elites took all the homes then too just like today.



smlbizman's picture

no wonder he is a former... confusing benny and the jets with reality....

SWRichmond's picture

Bernanke is not "all in".  That will be when he starts charging interest on excess reserves, which will be known as "Operation Twist The Fucking Knife."  All of this "all in" talk is just more stupid fucking jawboning by stupid fucking insiders who want the latest move to achieve the desired result.

pragmatic hobo's picture

I guess one question is will qe3 help obamma with re-election or not? If previous qe is any indication it will not help to reduce unemployment but it will likely jack up food/energy price. If so, and if gasoline price jump to $4/gallon, will obamma supporters even be able to drive out to polling stations?

GetZeeGold's picture




Are you telling me we have a chink in the armor?


NumNutt's picture

More then a chink.  More like we are suddenly aware that our armor is made out of nothing but worthless green peices of paper.  

LMAOLORI's picture



Nonsense the democrat's will bring them in bus loads to vote. None of them will fault obama they said over/over again at the convention it's not his fault he is blocked at every turn.  The other non stop whine is still after all these years bush's fault.  As long as they get the hand outs they will vote for him. Dems also say

‘Once You Vote Black You Never Go Back’

lakecity55's picture

"Once you go black, you never go back (to prosperity)."

Buzzworthy's picture

Buckle up, this plane is going down.

NumNutt's picture

Most likely sooner rather then later. As I type the current price of Brent crude oil is over 116 a barrel and climbing. The last great recession started when the price of gas shot up. Well thanks to the assholes in Washington we are going to see prices go very high, how long do you think we can survive with the price of food and fuel going through the roof? The only good thing is my gold is increasing in value, or is my paper dollars decreasing? Oh never mind it is the same thing.

El Hosel's picture

... Anytime now the Chairman In Chief is going to put on his flight jacket and declare victory on the financial crisis. All hands on deck for the grand poobah's announcement.

pamriallc's picture

Very simply put, the Fed pays back 85-90% of the interest it receives on the assets it purchases. So there it is. Timothy Geithner issues the bonds, the interest is paid to the Fed who then pays it back to the treasury.

That's right. And that's why the USA can issue all of the debt to the Fed that it wants to. This is ALSO WHY THE DEBT WILL ALWAYS BE ROLLED....AND NEVER SOLD.....

If this debt were in the hands of the Chinese, we would pay interest which we wouldn't be able to get right back. Effectively, this debt scheme of the Fed is simply allowing the US Treasury to issue unlimited T-30 with an effective rate near zero since the Fed gives the treasury the interest back. Those interest payments don't come back if ANYONE ELSE OWNS THE BONDS so now everyone knows why the debt issuance "isn't a problem for the USA" when there's no interest actually paid debt at all......

What about repaying principal? We get to figure that out in another 30 years..... research@pamria.com

LawsofPhysics's picture

...and precisely why the rest of the world will dump the dollar -  FAIL.

Cognitive Dissonance's picture

Ironically all the average customer sees is their monthly/quarterly statement, not the "market risk" that drove that statement up.

We instinctively understand that the best thing to do is buy when "things" are on sale.......except for stocks and bonds. The amount of conditioning that preceded this herd behaviour is unbelievable and centers on the money meme that mesmerizes us like deer in the headlights of a Wall Street armored truck.

Dr. Richard Head's picture

Not only does the average customer look at their monthly/quarterly statement, but they think in nominal terms instaed of inflation adjusted terms.  Fuzy math makes sense to the sheep, since it matches the texture of their coats.

rufusbird's picture

Most people I know keep talking about a recovery where the value of their real estate goes back up and they don't stop to consider that when that occurs their paychecks won't cover their expenses any longer.

LongSoupLine's picture


OT, but have you seen Super Typhoon "Sanba" heading straight for Korea/Japan?  175 MPH winds.

This fucker makes Katrina look like a nice sailing day.

Cognitive Dissonance's picture

A report this morning stated "gusts" were over 200 MPH.

How the freak would you even notice the 200 MPH "gust" in the face of a steady 175 MPH freight train coming straight at you? BTW this is the second super typhoon in the last 45 days for that area.


Killtruck's picture

Wasn't there some kind of delicate situation going on in Japan? Something to do with funny-looking butterflies and weird steam coming up out of cracks in the rocks? I dunno, I heard they were trying to put seawater and a tarp on some building over there.

Maybe the tarp can withstand 175 mph winds?

CPL's picture

iPhone 5.1 is happening...nothing to see here...move along.  The great and powerful GoJ had spoken about how things were fixed.  My favorite part of that storm is how it's being ignored

lakecity55's picture

CTL-P and Radiation for Everyone, Bit-Chez!

TheDriver's picture

Will this affect the delivery of my new iPhone?

goldm3mb3r's picture

iPhones for all and a chicken in every pot!

dwdollar's picture

A Super Typhoon cripples one of the few economies (South Korea) which isn't completely fucked already? There's something Apocalyptic about that. Nice.

jjsilver's picture

OMG, what an exposure, I'm so informed now.CNBC works so hard to bring us the truth.


Here is the real exposure folks.


The Credit River Decision

A Minnesota Trial Court's decision holding:

    the Federal Reserve Act unconstitutional and VOID

holding the National Banking Act unconstitutional and VOID
declaring a mortgage acquired by the First National Bank of Montgomery, Minnesota in the regular course of its business, along with the foreclosure and    the sheriff's sale, to be VOID



[ also see congressman Louis T. McFadden's Speech]


chunga's picture

In a shocking surprise the attorney was later disbarred and Justice of the Peace Mahoney died rather mysteriously shortly after his decision (later over-ruled)

mrktwtch2's picture

spx heading to 1600 by year end no matter who wins..dont fight this tape..by tvix at 60 cents..lol

hack3434's picture

Soo...ummm...I think Ben knows he's fucked!

adr's picture

Selling stock has pretty much been banned. Chipotle, Priceline, and every other stock that rightfully sold off big when earnings didn't come in to support their lofty valuations are all almost back to where they were before they sold off. Some are actually higher.

Just buy everything and watch the wealth roll in. It worked out so great the last few times.

The last shred of dignity this market could have claimed, is long gone. There is no reason to trade anymore, in fact there never really was a reason to start in the first place.


BrigstockBoy's picture

Yeah, like some of what he says but he's ultimately an apologist for Bernanke and the Fed. And his spiel about the Fed being worried about Joe six-pack is utter BS.

nobusiness's picture

I can see why they had to make hime a former Governor!

pndr4495's picture

How long before the US Dollar loses all of its hegemony as the accepted medium in international trade ?  Resentment packs a wallop when it manifests itself.

LawsofPhysics's picture

The central bankers stink of fear.

Assetman's picture

Fear and delusion.

If the umployment were "fixable" with monetary policy tools, they would have already been fixed with 3 years of ZIRP and $2 trillion in Fed balance sheet largesse.

Warsh's assessment I think is the correct one: the Fed's cost/benefit model is out of line with reality-- there hasn't been meaningful "benefits" to the unemployment picture-- and there won't be this time either.  The Fed would be better off buying iPhone 5's and giving them away for free.

The more dangerous thing for this Fed, however, is that they're making blind assumptions on the cost side-- i.e., how does Bernanke know with certainty that the costs of reversing Fed largesse are managable???   Everything outside of conventional policy has never really been tried before, yet there seems to be an odd certainty that market conditions will be optimal when the Fed finally decides to shrink the balance sheet back to size.

And as we speak, 5-yr implied inflation expectations are kissing the 3% level. 

Dr. Engali's picture

Ben Bernanke is an honorable man? Are you shitting me?

rsnoble's picture

Pretty sure i've mentioned on this site......numerous times......that the idea of the FED not doing QE3 unless there's a crash was a ludicrous idea at best. For several reasons including:  everyone already thinks the Feds are fucking morons--THEY DONT GIVE A FUCK WHAT YOU THINK THEY DO WHAT THEY WANT, and...........why would you spend gazillions building something up, pull the plug knowing full well it will tank?  No, you build on what you have already built.  Which is nothing for most of us.  There are a few subjects that should be mentioned around here but never are.  Imagine the amount of pissed off people there's going to be if the markets crashed and end up losing their pensions!  Of course I think it will happen anyway but it will keep the status quo fucknuts in power long enough to continue bashing our rights and taking over the rest of the world until nothing matters except them.

“Rebellion to tyranny is obedience to God.”-ThomasJefferson's picture

Put a fork in it!  We are done.  When the dust settles after this Greenspan/Bernanke shit storm of easy money policy ends, there will be 300 million debt slaves in search of a handful of banksters, crony capitalists, and politicos hiding out in their vast estates. This is turning into a Dickens/ Victor Hugo novel; and I sure as shit am not going to bide my time peacefully awaiting debtor's prison because some greedy Jew, any Bush, or some moron half breed Kenyan who pretends he's brilliant, says this is how things shall be.

Be on guard, and always ready to storm the palace!  This is going to get interesting...

Miss Expectations's picture

There's no need to fear, Charmin Bernanke is here.

bankruptcylawyer's picture

they didn't use the word 'print' in this 11 minutes even once. 


'bring back the balance sheet' . 'exit' . other nonsense. this is the code you need to hear to understand this is propoganda and lies dressed up with a sprinkle of semi-irrelevent half truths about the dangers of printing.

there is a point where they talk about the risks of 'exit' in the other 'direction'. which means they know what will happen if they raise interest rates sharply and cut the shit out of credit. right now, the entire treasury would either collapse, or result in the total destruction of investment and the beginning of the rise of savings.


what happens if the u.s. raisies interest rates? a total crash of the stock markets. 

CPL's picture

The proper term now is "conjure".

analyzer_66's picture

Give 40 billion a month to consumers instead to pay down debts.  The big banks get this money and pump the stock market up to oblivion and unemployment rate to the moon.