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."