Gold News

The Guild of Thrall: Warsh Fed Edition

Measured and authoritative. So there...
SO WHAT qualities might Donald Trump want in the next chair of the Federal Reserve? asks Adrian Ash at BullionVault.
"We'll do whatever we can do to prevent Kevin Warsh from taking on the role," says Jennifer Epps-Addison, president of the self-declared 'pro-worker, pro-immigrant' Center for Popular Democracy.
Sounds good. What else?
"Back during the crisis," says Dr.Karl Smith, director of economic research at the self-described 'libertarian' Niskanen Center think tank – advocates for more immigration and climate-change tax – "some of us used to say 'shut-up Warsh' to indicate that the previous speaker had just made a case so incoherent it wasn't worth addressing."
Better still. Anyone else got a view?
"Warsh...produced what seems to me the single most confused analysis of US monetary policy that I read this year," said his, umm, Trump-unfriendly friend Larry Summers in 2015, "backed by neither logic nor evidence."
"Warsh is indeed someone who has been wrong about everything," said, double-umm, Paul Krugman in 2013. "Warsh has been wrong about everything for the past decade," he adds today, "[with] no hint of being chastened by the failure of events to play out the way he expected."
Glowing testimony when you think who's making it. Warsh must be a shoo-in for Trump's nomination. And it can't hurt that he is apparently a friend already.
"His wife is the granddaughter of Estee Lauder," says CNBC, "and her father, Ronald Lauder, is a long-time close Trump friend. Warsh, a fellow at the Hoover Institution, was also a member of Trump's now-disbanded Strategic & Policy forum, a group made up mainly of CEOs who were working with the White House on economic and policy issues."
And briefing straight back at ya, "A source close to that group says Warsh's comments during its meetings were measured and authoritative." Not incoherent, confused or wrong. Measured and authoritative. So there.
Seeing all these recommendations – from think-tanks, academics, swamp insiders and journalists – what does Warsh himself say? He started getting his defense in early... way back in 2006 in fact, when he became the youngest-ever Fed governor:
"PhD's in economics are important, but what is at least as important is an understanding of the capital markets. [I have] real-world experience in boardrooms with CEOs and CFOs."
The following decade of name-calling and cat-calls must have hurt. Because here's the non-academic non-economist ex-Fed governor in June 2016:
"[The] existing policy paradigm...reveals a deep and damaging affliction of too many policymakers and academics: the groupthink of our guild; an unwillingness to revisit a priori assumptions; an excess of affection for the latest trends in academia; and, a generalised lack of humility in spite of anachronistic models and massive forecasting errors."
Note the phrase 'our guild' from this outside-insider? Touché then got touchy:
"I observe some smart and earnest economic professionals running with the pack, less willing to undertake a rigorous assessment of ideas that could belie their hypotheses, and more disposed to making ad hominem arguments to relegate alternative views. An immodest disposition from the leading lights in our guild might be understandable amid an economic boom. It is more puzzling given the meagre state of economic output."
Okay, okay, so you're not like other Fed chair candidates. You've got C-suite friends and an expense account, and you're not tainted by studying economics. You want to rip up the consensus, and don't care who you upset in the process. Which mostly seems to be bleeding-heart liberals.
You're hired!
Oh, but what might a Warsh Fed actually do? How would that sit with Trump's own plans for greatness?
"Too many policymakers appear in thrall to financial markets, and financial markets are in thrall to policymakers," said Warsh in that speech last June. "Reconsidering the transmission mechanism of financial markets and the responsibility of policymakers is of a piece with a reform agenda."
The "reform" idea knits with draining the swamp perhaps. But ending the thrall? Under a POTUS who tweets every new S&P high? As if he's personally to thank? And ending the thrall now, when everyone says they remember a thing called "risk" but they just can't be bothered to do anything about it?
Chart of US Fed total assets (right) against S&P500 index and home prices (left, all rebased to 100 = Sept 2007). Source: St.Louis Fed
Still, cometh the hour, cometh the policy wonk. And Warsh might be just the wonk to end the thrall, seeing how the US stockmarket seems at last to have found its mojo without a fresh dose of QE money creation. For now.
But trying to second-guess The Don is a parlour-game second only to predicting the gold price as a waste of time. Like Newsweek says:
"Trump could re-nominate Yellen, but he might not. During his campaign, he said Yellen should be 'ashamed of herself', but more recently said she has 'done a good job'. Yellen will remain on the board as a governor until her 14-year term expires in 2024."
Put his enemies' enemy in the role however, and this kind of confusion could very easily spread to the Oval Office itself. Or maybe to the new Warsh Fed – if it comes to pass, and if that thrall suddenly looks very necessary again to the POTUS.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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