Kevin Warsh = Best Opportunity For Federal Reserve Overhaul

Warsh = Catalyst For Necessary Reform.
Yellen = Almost Certainly Gone.


Last November Most Of The Focus In The United States = The U.S. Presidential Election.

Of Course…The Most Powerful Political Position On The Globe Was Up For Grabs And The National Populace Was Enthralled…Even Obsessed With The Outcome. And Now…It Is President Donny T.

However An Equally [If Not More] Powerful Role Is Currently Poised For Change…And, Of Course, Most Of The U.S. Electorate Could Not Care Any Less.

This Position, However, Merely Needs To Be Appointed…Rather Than Elected = The Chair of The United States Federal Reserve.

The Chair’s Global Monetary Powers = Staggering…Presiding Over The Planet’s Reserve Currency and Setting A Benchmark Value For Global Interest Rates.

More Importantly, There Is A Current Opportunity To Reset/Reshape The Functions/Principles of The Federal Reserve…Many of Which Have Greatly Bulged Since The 2008/2009 Capital Markets Bust.

The Most Controversially Executed Powers [among many] = Sovereign Debt Monetization + Quantitative Easing…Both Resulting In Remarkable Price Distortions Across Almost All Global Capital Markets…For Close To A Decade.

Donny T. Gets To Select Whomever He Desires…Congress Will Then Rubber Stamp Almost Any Reasonable Selection.


The Candidates…In Order of Likelihood =

  • Gary Cohn = Current Economic Advisor To Donny T. + Former President/COO at Goldman Sachs.
  • Janet Yellen = Current Federal Reserve Chair + Career Academic/Bureaucrat…Ideological Clone of Prior Fed Chair Ben Bernanke.
  • Kevin Warsh = Current Fellow At Hoover Institute/Stanford + Former Federal Reserve Board Member + Former Morgan Stanley Investment Banker.


It Is Extremely Difficult To Imagine That Any Of The Three Would Decline An Offer To Chair The Federal Reserve = Too Much Influence + Power To Refuse.

Cohn Seems To Be Surprisingly Ambivalent About A Possible Appointment. However, He Could Easily Handle The Position + Would Be Infinitely Preferable To Yellen.

It Seems That Yellen Would Accept Another Term But Is Resigned To The Idea She Will Likely Not Be Re-Appointed [despite Donny T’s recently kind comments after verbally eviscerating her during the U.S. Presidential campaign].

As For Warsh…He Is Clearly The Most Motivated Candidate…And If Successfully Appointed/Confirmed Would Likely Bring An Entirely New Intellectual/Market Savvy Imprint To The FOMC [Federal Open Market Committee]…Maybe Even Revolutionize It?


Warsh Has Been An Eloquently Outspoken Critic of Federal Reserve Policy/Tactics…Since Leaving The Fed in 2011.

I Encourage All to Review/Read His Position Papers Listed On His Hoover Institution Web Page.  Collectively They Are Specific/Striking With Regard To A New Paradigm In Federal Reserve Function/Policy.

Furthermore, His Humble And Tough Appraisals Are Properly Balanced With Optimistic/Pragmatic Ideas For Reform.


It Is Also Important To Note Warsh’s Relative Youth.

He Is Just 47 Years Old…But Is Not Inexperienced As He Previously Served As A Federal Reserve Governor Beginning In 2006 At The Age Of 35.

He Exited His Position After Serving Just 5 Years Of A 12 Year Term. So, It Seems, He Experienced The Inner Machinations + Workings Of The Rigid Institution And Then Politely Excused Himself.


It Is Clear That The Atrophied/Legacy “Group-Think”, That Warsh Has Referred To, At The Federal Reserve Could Utilize Some Fresh + Contemporary Energy/Ideas.  He Could Provide That.

A New Generation Of Leadership For A New Generation Of Policy.


Finally, It Is No Accident That Warsh Is In The Enviable Position of Consideration.

It Appears He Has Worked Diligently To Achieve His Successes. He Holds The Requisite Ivy League Education + He Adds Real Financial Market Experiences From His Days At Morgan Stanley. Plus, He Holds A Degree In Law and Serves On The Board of Directors at UPS.

He Also Seems To Have An Ally In Formerly High Powered + Still Very Well Connected/Influential Hedge Fund Manager Stanley Druckenmiller As Witnessed By Several Co-Authored WSJ Op-Ed Pieces From June 2014. And He Is Married To An Estee Lauder Heiress.

Despite These Extravagances Of Success Warsh Is Aggressively Pushing The Envelope For Central Bank Reforms…That Naturally Encounter The Status-Quo’s Stiff Opposition. It Appears To Be A Well Mannered Intellectual Battle.

Warsh Even Delivered A Strongly Worded Commentary At The Central Bank Lions Den [Bank for International Settlements]…Boldly Titled = “Reform or Perish”

Yes…The Global Monetary Stakes Are That Dramatic.


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Can Central Banks Be Defeated?

Is It Even Possible To Chop Down A Money Tree?


That Infamous Marty Zweig Quote = “Don’t Fight The Fed” Has Never Been So True.

Global Central Banks Are In Total Control of The Capital Markets and They Have To Love It. The Power Must Be So Intoxicating.

Every Monetary Policy Move They Make…Every Verbal Utterance = The Markets Love = Lower Bond Yields + Higher Equity Prices.

Plus Asset Price Distortions Are Not Just Ignored…They Are Celebrated…As QE Is The Money Tree That Endlessly Produces.

Robust GDP Has Now Become An Afterthought. QE = Better Than Economic Growth Anyway…According To The Capital Markets.

It seems like it will NEVER END.

Even The Biggest Downside to QE [currency debasement] Has Been Rectified As Central Bankers Simultaneously QE [U.S. + EU + UK + Japan + Switzerland + Canada + China]. It’s All Relative Now.  The Currency Concern Has Diminished.

Moving Forward All Major Central Banks Will Only Universally Adjust Policy In The Same Direction.


Still…What Is The End Game…That Is…If There Is One?

The Parabolic Equity Markets Just Keep Thrusting Higher As Acute Corporate Managements Have Figured Out How To “Play This  Game”…that is…Maximize Earnings Per/Share Without Much Revenue Growth By Continuously Repurchasing Their Highly Priced Shares [usually with borrowed money at a yield lower than the common stock] and Endlessly Cutting Overhead.

There is a Bull Market In Income Statement Optimization and Corporate Managements Must Not Even Adhere To Established Accounting Standards Anymore i.e. Non-GAAP = The New Accounting Normal.

Add in The Paradoxically Endless “1-Time” Restructuring Charges and The Corporate Profit Rainbow Gets Even Brighter.

Bad = Good. Good = Great. Great = Awesome. Awesome = Nirvana. Capital Markets Have Taken A Que From Central Banks And Have Also Transformed Into Money Trees Without Risk.

99.9% of John Q. Public Could Not Even Define A Central Bank. Nor Does He Care…Ignorantly Enabling A Most Radical Economic Experiment That Morphs Larger Every Week…Singularly Hell Bent On Stoking Inflation Toward A Random 2% Target…With Most Of The Globe’s Wealth At Stake.

Plus “Thought-Leaders” In The Know, such as Bridgewater’s Dalio, postulate about a “Beautiful [Central Bank] Balance Sheet Normalization”.  El Erian Can Only “High-Five” The Idea.  

Everybody = “All In”.


On The Other Hand…What Could Change This Ecstatic Capital Market Status Quo?

There Are Really Only 5 Explanations [beyond an unpredictable geo-political event such as 9/11]:

1. Inflation =
Somehow Gains Traction + Quickly Leaps…Relieving The Globe of QE’s Argued Necessity.

With QE Quickly Exterminated…The Capital Market Dominoes Logically Fall. Game Over For Financial Assets. It Would Be Brutal.

2. Deflationary Forces =
Build Momentum & Organically Drive Down GDP.  The Basic Idea = The Economy Becomes Effectively Immune To QE [after 8+ years of treatment]  & Initiates A Belief That QE = Part of The Economic Problem Rather Than Part of the Solution.

The Capital Markets Response, In This Case, Would be More Dramatic Than The Inflationary Impact Described Above.

3. Central Bank Powers Emasculated =
If The Power to Print Currency + Buy Assets Were Removed or Required Legislative Approval [somewhat linked to #2].


4. Stock Market Crash Leads To Economic Slow-Down =
There Is Plenty Of Well Documented Fuel To Support This Hypothesis…But The Igniting Spark Has Not Yet Emerged.

Very Quickly All Of That Share Repurchase Capital, Expended By Corporate Board’s, Would Be “Out Of The Money” and Sharply Questioned/Re-Directed Moving Forward.

5. Digital Crypto-Currencies =
Like/Trust Them or Not They Are An Emerging Transactional Force.

And They Offer The Massively Attractive Feature of Finite Supply…Unlike Fiat Currencies. This Is Just Another Iteration Of The Contemporary Technology Revolution.

It Is A Slow Moving Train But It Is A Considered Alternative To Existing Currencies As We Know Them.


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