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. 🙁
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 Warsh’s best call was marrying the granddaughter of Estée Lauder. Her father is a friend of and donor to Trump. That may explain the nomination.
🙂
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.