As Chris Giles notes in the FT today with regard to the nomination of Kevin Warsh as the new Chair of the Federal Reserve (which is the US equivalent to the Bank of England):
Warsh has long believed that central banks became addicted to printing money, encouraging recklessly large public deficits. He thinks they should stick to their knitting on inflation and not get distracted by environmental concerns or the distribution of income. He is certain that inflation is as much driven by profligate governments as by rapid economic expansion. He also worries that mission creep by central banks erodes their ability to act independently in their core functions and ultimately undermines their credibility and legitimacy in a democracy.
What could go wrong?
This is a man who clearly believes in balanced budgets and the household analogy, is completely unconcerned about the realities of life beyond a bank's walls, and is utterly indifferent to the future of our planet. He is about as far from having a modern monetary theory approach to life as it is possible to get, and crucially, his policy is bound to conflict with that of Donald Trump, whose desire is for low interest rates, come what may, which will almost certainly conflict diretcly with what Kevin Warsh will want.
What could go wrong when US economic policy is likely to have massive consequences for the rest of the world, most especially if we have a crash, and Kevin Warsh is noted for opposing state intervention in such situations? Well, actually, a very great deal.
On a scale of 1 to 10 for a potential disaster in the making, this seems to some to come in somewhere around 11.
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Just what the world needs – another fiscal pervert, but also a willing dupe in helping Trump to become richer and help ‘crapto’ along (crypto).
I am not sure we do know what Kevin Warsh really thinks.
Yes, he certainly WAS a fan of balanced budgets but that is standard Republican (even MAGA) rhetoric…. while Democrats are in power.
Once they get to drive the bus it is all change. Frankly, we have no real idea what he will do….
The hopeful bit is the inevitable clash with Trump, and the resultant ejection of toys from the presidential pram.
Presumably, he will have to continue to print the $$ demanded by the Pentagon, DHS, ICE and other key fascist acronyms? Those US aircraft carriers headed for Iran don’t pay for themselves, and Stephen Miller’s ICE arrest target of 3000/day won’t be achieved merely by toxic lying rhetoric.
If that is true of Warsh, and it may well be, then he could be a disaster. Mark Carney apparently welcomes his appointment, which rather brings Carney’s judgement into question.
On the other hand Paul Krugman suggests (https://paulkrugman.substack.com/p/a-bad-heir-day-at-the-fed) that Warsh is likely to change his view to fit the political desires of his master Trump. I’m guessing Trump thinks so, else he wouldn’t have appointed Warsh.
The lower interest rates that Trump wants may be a good idea – if taken together with other appropriate economic policies. The latter part of the sentence is important. It seems unlikely that there will be other, accompanying, sensible economic policies.
And Krugman points out that rate setting decisions are by committee and so Warsh may be largely ignored; he has only one vote.
Nevertheless, since Warsh is a Trump appointee, it seems likely that he will be bad. đ
I read Krugman. I think a a balance of him and Giles makes sense.
Thank you, Richard.
I came across Warsh when working at the main banking trade body from 2008 – 12. Warsh was a Fed governor from 2006 – 11.
I thought Warshâs best call was marrying the granddaughter of EstĂ©e Lauder. Her father is a friend of and donor to Trump. That may explain the nomination.
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I think that part of it is him saying what the republican party wants to hear. Especially those in the senate who have to certify his appointment. I am not sure what to make of it policy wise. Trump has been saying he wants lower interest rates. What Walsh says seems to contradict that. The messaging seems all confused. What is clear is that Trump sees that the FED contains enemies to his agenda. And these are the same people who will be enemies of Walsh. There isn’t a common policy, but they are allies because they have a common enemy.
Sorry …this is a little tangential…. I’m looking for help with some UK Central Bank information…
I’m trying to find the act of parliament or the section of the Bank of England’s charter that obliges The BoE to pay any obligations incurred by or financial commitments made by the government…. am I right in thinking that the Bank of England has to pay whatever is laid out in the budget if the budget is passed in the commons? I want to be really solid on the facts here because I am spending quite a bit of time discussing this stuff with friends…
Many Thanks for any help…
It is implicit in here. https://www.legislation.gov.uk/ukpga/Vict/29-30/39/contents
As usual Richard is right. Itâs s13 of the 1866 Act.
You may be thinking of the Charter for Budget Responsibility which the Treasury has to prepare under the Budget Responsibility and National Audit Act 2011. It is against this that the Office for Budget Responsibility reports. The latest emission from HMT is dated January 2025 and the gist of the Treasuryâs targets is set out in Chapter 3 with the the âhighlightsâ being : budget surplus by 29/30 financial year and thereafter and net public liabilities fully as a percentage of GDP
However the penalty for failure to meet this objective in the opinion of the OBR is simply that the Chancellor has to own up to Parliament. In any case under S1 (5) of the 2011 Act the Treasury can modify the charter and if Parliament approves the modification takes effect. So as always the governmentâs ability to run a deficit is controlled by Parliament – as it should be – we had a very nasty Civil war which laid the foundations for control of the executiveâs spending power.
Thereâs a good House of Commons Library source with more information in this link dated Jan 2026.
https://researchbriefings.files.parliament.uk/documents/CBP-9329/CBP-9329.
I hope this helps.
Thanks
Thanks, thatâs reassuring and I will read the report you link đ
Thank you, I would never have found that on my own!
Was ploughing through Bills from 1946 and 1998 and struggling to understand them.
I think even if I had come across the section here I might not have recognised that this was the relevant bit…
I have been worrying that the fiscal rules law passed on 29th January 2025 by the Labour Government had effectively stripped the government of the right to run a deficit…… but the page (https://www.legislation.gov.uk/ukpga/Vict/29-30/39/section/13) with section 13 says
“There are currently no known outstanding effects for the Exchequer and Audit Departments Act 1866, Section 13.”
So perhaps I am worrying about nothing?
Or has the Labour Government in fact created a sort of grey legal area here?
Is this maybe be the most damaging piece of legislation that the neo-liberalising New Labour project has enacted so far?
Or was that the 1998 Act…. granting operational independence and creating the FSA?
What a can of worms…….
Really seems to be Labour that has pressed the Banking Liberalisation….. after Thatcher and her carpetbaggers did the ‘rough stuff’ with unions and the nations assets….
Thanks so much again for your help. This stuff is really complicated.
The fiscal rules are not law. They are gobbledygook. Osborne tried to enact them, but everyone knew it was a joke. There were ample let outs.