Kevin Warsh May Be The Next Fed Head - Let's See What He Really Thinks

Authored bvy Daniel Nevins via,

As reported earlier this morning by the Wall Street Journal, President Trump and Treasury Secretary Mnuchin met with Kevin Warsh yesterday to discuss the potential vacancy at the Fed next February.

Warsh already has central banking experience, having sat on the Federal Open Market Committee (FOMC) from February 2006 until March 2011.

Two and a half years after he resigned from the Fed, he emerged as a vocal critic of FOMC policies, including those policies he helped craft. He published an op-ed in the WSJ on November 12, 2013, and it was quite the editorial. As that happened to be the first week of hunting season, we suggested that Warsh had declared open season on his ex-colleagues, and we came up a gimmicky picture to go along with our reporting:

But we also thought his op-ed needed translation. It was written with the polite wording and between-the-lines meanings that you might expect from such an establishment figure. He seemed to be holding back. We offered our guesses on what he was really trying to say. And with today’s breaking news, we thought it would be a good time to reprint our translation.

So, if you’re wondering what the current frontrunner as Trump’s choice for the Fed chairmanship really thinks, here are Warsh’s comments on nine topics, followed by our translations.

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 its egregious generational theft and destroy our nation’s finances, just as Stan, Geoff and I 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 support 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 kiss the dollar goodbye.

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, 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.)

Our up-to-date reflections

Back to the present now, we’ve reread our translations and have to admit that the last one—on the Janet Yellen nomination—was purely smart-alecky. But we don’t think the others were far-fetched—they seem consistent enough with Warsh’s carefully expressed opinions. If we were right, we could be facing big-time changes at the Fed. Then again, many Trump supporters expected a less war-mongering foreign policy from the presidential candidate who claimed we were being overly aggressive overseas.

So, if Warsh is indeed appointed as Yellen’s replacement, the key question is this: Will the individual change the institution, or will the institution change the individual? We may find out next year…


Paul Kersey debtor of last… Fri, 09/29/2017 - 18:37 Permalink

"The Fed buys mortgage-backed securities, thereby providing a direct boost to balance sheet wealth of existing homeowners"

What bullshit. The Fed ran up its balance sheets by buying nonperforming existing mortgage-backed securities, from the TBTF banks, in order to purge their balance sheets of toxic paper that would have brought them into insolvency. And who sells them these junk mortgages? It's the Federal Reserve Bank of New York's Primary Dealers. And where do the Primary Dealers come from? They are execs and partners of the TBTF U.S. banks and other large banks that are part of an international banking cartel. It's a multi-trillion dollar game of "pass the trash" between the commercial banksters and the Federal Reserve Bank.

"to the detriment of renters and prospective future homeowners."

To the detriment of future homeowners? More bullshit. If the Fed didn't buy this toxic waste, and if the U.S. Treasury didn't guarantee it, 90% of buyers couldn't get loans, because what private investor wants to sit on 30 year mortgages that yield 4%? If the Fed doesn't constantly replenish its MBS balance sheets, and the Federal Government doesn't guarantee them, house sales in America are dead.

In reply to by debtor of last…

All Risk No Reward peddling-fiction Fri, 09/29/2017 - 21:33 Permalink

Now that the debt-money bubble is blown back up to epic proportions, they now need someone to manage the popping of said bubble.

The next Debt-Money Monopolist Fed Puppet will be **that** guy.

"Norman and Strong Were Mere Agents of the Powerful Bankers Who Remained Behind the Scenes and Operated in Secret

It must not be felt that these heads of the world's chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down.

The substantive financial powers of the world were in the hands of these investment bankers (also called "international" or "merchant" bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks.

This dominance of investment bankers was based on their control over the flows of credit and investment funds in their own countries and throughout the world. They could dominate the financial and industrial systems of their own countries by their influence over the flow of current funds through bank loans, the discount rate, and the re-discounting of commercial debts; they could dominate governments by their control over current government loans and the play of the international exchanges.

Almost all of this power was exercised by the personal influence and prestige of men who had demonstrated their ability in the past to bring off successful financial coupe, to keep their word, to remain cool in a crisis, and to share their winning opportunities with their associates. In this system the Rothschilds had been preeminent during much of the nineteenth century, but, at the end of that century, they were being replaced by J. P. Morgan whose central office was in New York, although it was always operated as if it were in London (where it had, indeed, originated as George Peabody and Company in 1838)."
~Professor Carroll Quigley, Tragedy and Hope, the only known Debt-Money Monopolist CFR Historian.

In reply to by peddling-fiction

Chupacabra-322 JRobby Fri, 09/29/2017 - 20:23 Permalink

@ JR,

'The cult did this by virtue of a very simple scam. It interjected itself between the state and its people by creating the medium of exchange (money) as an interest-bearing debt to itself. Money creation is something the State is perfectly capable of doing itself, without incurring any debt nor paying any interest.

This fundamental fraud is the explanation for almost everything that has gone wrong with the world.

In order to distract society from the real enemy gnawing at its heart, the central bankers have always created a series of phony enemies and unnecessary wars. '

In reply to by JRobby

All Risk No Reward Chupacabra-322 Fri, 09/29/2017 - 21:36 Permalink

Chupacabra, also note that the wars invariably are waged by central bank countries against non-central bank countries with the result being that a debt-money central bank is imposed upon the defeated country.

As unbelievable as it may sound, Western Civilization is really the story of a civilization hijacked and directed by a surreptitious Money Power actor hiding in the shadows.

It is an Alexander the Great meets Sun Tzu ruling class that controls the West.

In reply to by Chupacabra-322

Paul Kersey Mikeyyy Fri, 09/29/2017 - 20:24 Permalink

I challenge you to document your remarks. Show me the error of my ways, if you can.

"Primary dealers are trading counterparties of the New York Fed in its implementation of monetary policy. They are also expected to make markets for the New York Fed on behalf of its official accountholders as needed, and to bid on a pro-rata basis in all Treasury auctions at reasonably competitive prices."

"After two years of secrecy, the Federal Reserve Bank of New York is disclosing key details about billions of dollars of risky investments it bought while rescuing insurance giant American International Group Inc. and supporting the sale of failed investment bank Bear Stearns. The New York Fed said what investments are held by three companies it created to buy them from Bear Stearns, AIG and AIG’s business partners. The New York Fed also revealed their current values.

This week’s disclosure marks a sharp reversal for the Fed, which has long refused to disclose many key details about the bailouts, including what assets it holds in these companies, and what assets it accepted as collateral when making low-cost loans to banks. These “toxic” investments were at the heart of the 2008 financial crisis. Their values often are based on the values of thousands of underlying mortgage loans, which were pooled and sliced up into complex securities and other financial products."

"At the height of the 2008 financial crisis, the country heatedly debated whether to nationalize the failing banking system. Both the George W. Bush and Barack Obama administrations rejected that path as excessive government intrusion into the marketplace. Yet since then, with little planning and paltry public discussion, the government has almost completely taken over the American home mortgage market. Banks and other for-profit financial services companies lend money to homeowners, but without the guarantees and other support the government provides, the housing market would barely be functioning now."

"The Federal Reserve's $1.25 trillion program to purchase agency mortgage-backed securities was intended to provide support to mortgage lending and housing markets and to foster improved conditions in financial markets more generally."

"Normally a bank can go to the capital markets to sell an MBS, but in 2008, those markets froze. So what the Fed did was to create a separate company called Maiden Lane LLP. (actually they created three different companies). It then loaned money to Maiden Lane, Maiden Lane then used the loaned money to buy MBS from the banks. However, in this situation, the MBS still had to be worth something, and Maiden Lane can't buy an MBS that they think is worthless."

In fact, Maiden Lane did turn out to be worthless. Both the MBS and the CMBS imploded. Thank you Bear Stearns.

In reply to by Mikeyyy

onwisconsinbadger Fri, 09/29/2017 - 18:10 Permalink

UK university censors title of Holocaust survivor's speech criticising IsraelManchester University talk was to be titled ‘You’re doing to Palestinians what the Nazis did to me’ until Israeli diplomats intervened

Stormtrooper Fri, 09/29/2017 - 18:15 Permalink

Obama is already on the list to pay the ultimate price for High Treason for holding the office of POTUS as an illegal alien.  Guess he should receive some extensive torture prior to his final execution for also picking a horrible Fed chief.

Lumberjack Fri, 09/29/2017 - 19:24 Permalink

Here is the latest BIS info on cryptocurrencies.

the idea is for the Federal Reserve to create a cryptocurrency that is similar to bitcoin. However, unlike with bitcoin, only the Federal Reserve would be able to create Fedcoins and there would be one-for-one convertibility with cash and reserves. Fedcoins would only be created (destroyed) if an equivalent amount of cash or reserves were destroyed (created) at the same time. Like cash, Fedcoin would be decentralised in transaction and centralised in supply. Sveriges Riksbank, with its eKrona project, appears to have gone furthest in thinking about the potential issuance of a retail CBCC (Box C).

I cannot trust these bastards (and their cartels) at all after what was featured here:

All the Plenary's Men.

bshirley1968 Fri, 09/29/2017 - 18:57 Permalink

Imagine that.....another Jew boy whose father-in-law is President of the World Jewish Congress.IF.....Trump makes this appointment and all you Trumptards don't have a "come to Jesus" moment and realize is a stooge for the tribe, then you deserve all that you are going to get in this life for being stupid.Shit is getting THICK.

All Risk No Reward bshirley1968 Fri, 09/29/2017 - 21:43 Permalink

BankstoTrump doesn't care about Muppet supporters.

He's made a deal, and it is with YOUR OWNERS. YOU HAVE OWNERS. THEY OWN YOU.

RIP Carlin.

PS - The Jewishness is not the problem. The problem is his alignment with apparent Luciferian Debt-Money Monopolists.

That's the problem.

Begin the walk towards wisdom; call a think by its accurate name, not the propaganda programmed name.

"The beginning of wisdom is to call things by their proper name."

In reply to by bshirley1968

HyeM Fri, 09/29/2017 - 19:07 Permalink

They can have and express their own opinions, until Goldman Sachs gives the node and they get the job and become Goldman's servent ... with their marching orders (and their new "opinions") handed to them. 

Chupacabra-322 Fri, 09/29/2017 - 20:24 Permalink

This goes deep, and no one is connecting the dots. First of all, Goldmanites Mnuchin and Cohn, the bankster boys that Trump put in charge of the US economy, want this:

"Treasury seriously studying issuing 50-year or 100-year bonds: Mnuchin"

And they want this:

"Trump Begins to Chip Away at Banking Regulations"

But most of all they want this:

"With Trump's deregulation plan, big banks could get back in the mortgage market"

So what does it all mean? With no Dodd-Frank, the now non-regulated banks will be free to create 50 year amortized mortgages. A $300,000 loan will have P&I payments of $1,100 a month, and everybody with a house and a pulse will re-fi their mortgages. The TBTF banks will make hundreds of billions in mortgage fees (points), and hundreds of billions more selling the mortgage-backed securities to the secondary market.

And there's much more:

"Goldman Sachs has purchased 59% of Fannie Mae-auctioned NPLs since it started selling in 2015 – a total of $5.7 billion in unpaid loan balances."

The Goldmanites are siting on over thousands of non-performing mortgages recently bought at big discounts from the GSEs, and, with the crazy cheap payments on the 50 year mortgages they can give new buyers of the homes they foreclose on, they will make untold billions of dollars more. And, by the way, they sure as hell don't need Carney to do this. Goldmanite William C. Dudley is the President of the New York Fed (FRBNY). He is the real power behind the Federal Reserve Bank and gets paid twice as much as Yellen. With Dudley running the Fed, Ex-Goldman President Cohn, Trump's chief economic adviser, and Goldman partner Mnuchin as Secretary of the Treasury, the Goldmanites can run the table and create an even higher leveraged housing boom than we saw in 2007.

All Risk No Reward Chupacabra-322 Fri, 09/29/2017 - 21:48 Permalink

The biggest piece of the puzzle is that the debt-money bubble will be popped on Trump's watch and blamed on Trump as the patsy.

That's why they selected him for President and rigged the election with an October Surprise against Hillary (they decided no charges against Hillary in mid 2016, so why announce the investigation in October like she could be charged? To promote BankstoTrump, the man they gave $2 billion in free advertising to!).

They don't want a few more billions in revenue, THEY WANT PHYSICAL REALITY.

And they are close, oh, so.... close...

In reply to by Chupacabra-322

junkyard dog Fri, 09/29/2017 - 20:25 Permalink

Stop blaming everyone else for the middle class income problem. The middle class is killing the middle class. The middle class can be summed up in a single word; television. The middle class reads at the 4th grade level. The middle class uses math that is taught at the 3rd grade level. Therefore there is no other distraction that warrants the wholesale destruction of the middle class other than television. And, the momentum for the destruction is provided by white males of all ages. White males have all the money-just watch the commercials. Tits, ass and snatch: oh by the way drink this piss called beer. The PBR truck will be here in a few.