In July, rumor had it that National Economic Council director Gary Cohn was a shoo-in to replace Yellen.
That belief vanished when Cohn criticized Trump’s response to racial violence in Charlottesville.
The smart money now believes former Federal Reserve governor Kevin Warsh is the favorite. Warsh met with Trump today.
CNBC reports As Fed chief, Kevin Warsh Would ‘Break With the Old Playbook’.
Should President Donald Trump choose Kevin Warsh to run the Federal Reserve, he’ll be getting someone who doesn’t exactly fit the mold for the position and could bring significant changes to the way the central bank operates.
In fact, Warsh might be just different enough from current Chair Janet Yellen to please Trump while still maintaining loose enough policy not to tank the economy.
“He has the conservative credentials,” said Christopher Whalen, head of Whalen Global Advisors and a respected voice in the world of finance and central banking. “He’s a very good choice because he’s not an economist. He has the conservative and intellectual credentials to carry it off. … He would be a relatively noncontroversial pick.”
Warsh vaulted to the front of the pack Friday when reports emerged that he has met with Trump and Treasury Secretary Steven Mnuchin, apparently to talk about taking over as Fed chair after Yellen’s term expires in February.
In addition to his conservative and intellectual credentials, he also has a vital personal connection — his wife is Jane Lauder, daughter of Ronald Lauder, a longtime Trump pal and heir to the Estee Lauder cosmetics giant.
“Kevin Warsh frankly in intellectual sense is going to be willing to break with the old playbook,” Whalen said. “He would be very balanced and the Street would have no problem with Warsh. The problem with Yellen is she has done too much with no effect.”
New Playbook?
I see a clear break in the trend of lower and lower heights.
Interest rates?
A return to zero once again would not be surprising. Regardless, there is little that Warsh can possibly do.
Mike “Mish” Shedlock
If Warsh is picked, it would be another win for Jim Rickards, who said Warsh was a very likely pick months ago. Rickards also bet that Trump would win months before the election when everyone else was on the Hillary bandwagon. Ive been watching to see if Rickards and his extensive background was for real or not. He may just be.
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Rickards is a bright guy – no doubt
But he is a tied to Agora and is an enormous promoter of hype and hyperinflation
Like everyone else, including me, he is not always right or wrong
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He was a financial writer and interviewee before Agora. I dont know why he joined up with Agora, a crew I read almost daily :), but prediction-wise, he’s been unusually good. I watched Jim Rogers since 2005 and he became a “got lucky in the 1970s and that was it” person. Rickards made the financial 1914-1929-1971-? “apocalypse” prediction for next year. We’ll see.
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Rickards is that guy Mr Jones, you know something is happening, you don’t know what it is? He called the Trump election victory eleventh hour and predicted a major crash in stocks. ooops.
I like to read him and then try to figure out what’s really going to happen. Like I believe that there will be war with North Korea, but it will be China who invades NK. Look at the chart of FedRates, every time in the last two decades when the Fed stepped on the gas the market crashed. We cannot tolerate even small increases in interest rates apparently. As long as the data is stable the Fed plans to continue to normalize and that will not end well for stocks, but if it somehow does, Well God Bless America!
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His prognostications about Brexit and the Chinese Shanghai gold-backed oil futures contact have also been accurate. I find him very interesting and far better informed than most financial commentators.
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As it turns out D. Stockman may have succumbed to this doom and gloom hype . He lost credibility with me when DS started selling investment advice products I believe through Agora. They were not cheap and based on long dated stock option puts .
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As you say Mish, sometimes he is right and sometimes he is wrong…. just like all of us. But when he is wrong, Rickards (just like Algora) will NEVER stand up straight, face the camera, and admit to it. The only thing that people in the “capital markets industry” have to sell is the blah blah blah that comes out of their mouths. If their customers and clients perceive them to be wrong then their goose is cooked. And that is at the core of why the investing public has such disdain for the financial industry.
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We are probably going negative before this is over, then the disintermediation will blow up the banks once more and we begin again. If it is Warsh I doubt we try to do the same thing as we have done in the recent past.
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That is what my playbook says.
Only a matter of time before another financial crisis hits Wall Street. This time TPTB know j6p won’t stand for another wholesale bailout of the banks (TARP.2*). A few sacrifices will have to be made (Bank of America & Citi the likely stooges) in order to save the rest. The rest of Wall Street (read: JPM and GS) will gladly go along. As the carcasses of the “failed” will be carved up. The best parts will be scooped up by Wall Street (read: JPM and GS) for a pittance. The rest will be forced on taxpayer to eat the loss.
*I would wager a small amount that after the circus surrounding original TARP, behind closed doors the pooh bahs of Congress told Treasury and Federal Reserve: Do whatever you have to do to keep us from having another ANOTHER TARP vote.
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“This time TPTB know j6p won’t stand for another wholesale bailout of the banks (TARP.2*).”
Last time TPTB knew j6p wouldn’t stand for a wholesale bailout of the banks. They did it anyway.
Also Citi wrote a law in 2014, that puts the tax payers on the hook for banks with huge derivatives exposure. Jamie Dimon, whose bank has big derivatives exposure, lobbied heavily for it.
Congress passed it.
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After putting way too much faith in the incompetents in Congress, Trump needs an easy win, and Warsh is an easy win.
Only a fool would suggest manipulating interest rates lower again. It didn’t work the last time, it didn’t work in Japan, it didn’t work in Europe. Doing the same dumb thing and expecting different results is insane.
Protecting the rather limited savings pool in the USA, especially for retirees / baby boomers, is going to be more and more important. Citizens whom Yellen works for don’t get “guaranteed” pensions stolen from said citizens. One has to think Yellen would not have been so arrogant with interest rates if her own money and her own well being had been on the line.
Normalizing interest rates is a no brainer (historically, short term rates were roughly equal to CPI… so about 2.0 – 2.5% if you trust the Boskin commission). Normalizing rates would stop the bleed on retirement money and savings in general (something the US economy desperately needs). It would stop the distortions of stealing from savers to bail out big bank CEOs (traders, sales, and bank tellers all got laid off — not the empty suit in the CEO suite). And normalizing rates would put extra pressure on inept legislators who confuse borrowing more and more money with actual economic growth.
Most importantly of all, normalizing interest rates implicitly means an end to destructive central economic planning. The Fed doesn’t know what it is doing, and its time we all stop kidding ourselves otherwise.
Warsh is more likely to normalize rates than the clueless baffoons that have been mismanaging the Fed for the last 15+ years.
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With $20+ trillion in Federal debt alone, there is no way they can allow interest rates to rise ever again. They will drown the govt inflation numbers forever as they have no choice. They cannot afford to pay all that interest.
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With an aging population living on fixed income, there is no way they cannot afford NOT to raise rates.
With a need to maintain the US dollar’s reserve currency status, there is no way they can afford not to raise rates.
If the public school systems weren’t failing, we wouldn’t have to listen to silly arguments that a massive debtor (its a LOT more than $20 trillion) can decide how much interest it wants to pay. That has never worked in human history.
What we cannot afford to do is continue the fraud that increasing debt is the same as economic growth.
America wasn’t built by socialism and deadbeats, and it won’t survive on socialism and deadbeats either.
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Actually Scott, a country with an aging population that lives off fixed income cannot afford to keep rates artificially low. Whatever you erroneously think you are “saving” on interest expenses, you will lose 10x that when baby boomers savings run out.
Actually Scott, a country that desperately needs to maintain global reserve currency status cannot afford to behave like a 3rd world banana republic. Global reserve currencies maintain purchasing power and pay enough interest to compensate for inflation (even if it is reportedly “only” 2-2.5%).
You can bet the survival of the baby boomer generation that interest rates are going to get normalized, even if the Fed tries to fight it. Ask England and France and all the other has-been empires that thought the rules didn’t apply to them.
Please stop acting like the USA is a banana republic. You are embarrassing the rest of us
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The USA is becoming more of a banana republic as time goes on. Albeit a well-armed, arrogant and belligerent banana republic that has swung from Marshall Plan nation rebuilding after WWII to nation destruction based on existential threats, false intelligence and fake news. The Washington D.C. Beltway is as corrupt as it gets, and raising and lowering central bank interest rates is as esoteric and irrelevant as ancient theological arguments about how many angels fit on the head of a pin.
Savings are a thing of the past for a majority in the USA, and higher bank fees will confiscate any benefits for small savers. Half of Americans apparently cannot afford an unexpected $400 expense, and offering higher interest bank accounts will not alter that. With credit card debt interest rates up to 22%, many Americans are already experiencing sky-high interest rates in this much-hyped low interest rate era. Low interest rates were considered a Christian virtue for much of history. Trump said he liked Yellen because of her long history favoring low interest rates. So, I would expect a Trump nominee to be okay with low Fed rates, and perhaps even push consumer interest rates lower. Savings account interest rates seem off the radar, irrelevant to officialdom.
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The crude oil markets world-wide are pricing in the increasing possibility that the USD will lose its reserve currency status soon. Down goes the petrodollar. Down goes the ability of the US government to fund itself by “printing” reckless amounts of reserve currency.
Remember a decade or two ago when US citizens and Congress were freaking out about Japan Inc? Now nobody cares. Abe is a joke. Japan’s population is in free fall, having children is unaffordable for an increasing number of Japanese. The Bank of Japan rambles on about their policy and not even the Japanese investment banks care — 90% of the time the JGB traders don’t even wake up from their naps to listen.
I am not disputing that most of the fat cats in Congress would theoretically like to keep interest rates zero forever and also be THE big global power.. Its just that they are now being forced to choose one or the other… and I predict their outsized egos will get the better of them.
Whether or not you can afford your mortgage has zero effect on Congress — they still get their perks even if you are homeless.
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True, Yellen like Congress, gets a fat tax payer funded guaranteed pension for life and tax payer funded zero deductible health insurance for life (NOT ACA). What does she care about the economy or the markets, won’t affect her retirement.
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Normalizing rates might also slow down the ridiculous skyrocketing real estate prices in many cities too. A lot of the gain is due to artificially low rates.
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Consumer payments for houses will stay the same, even though interest rates change. Higher interest rates will lower real estate prices, but consumer payments will stay the same because higher interest rate payments will offset the lower real estate prices. Bad for real estate sellers. Real estate buyers will simply bet on or try to time the next lower interest rate cycle to refinance or sell. Speculation in housing will go on, with some dips between manias. Betting on housing is an American casino sport made possible by 30-year mortgages. Longer mortgage lengths (plus easy credit availability) instituted in the 1930s made the real estate price boom possible.
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“Only a fool would suggest manipulating interest rates lower again. It didn’t work the last time, it didn’t work in Japan, it didn’t work in Europe. Doing the same dumb thing and expecting different results is insane.”
I don’t think that is a qualifier for them not doing something again.
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Tom Price certainly thought as you do. Corrupt government officials have been flying private jets while TSA agents fondle taxpayers for a long long time.
But the deplorables who elected Trump have had it. The dot-com crowd from San Francisco has been exposed, even if they now call themselves FAANGS its the same hot air. That is who **wants** to protect the status quo, but it is increasingly clear they don’t have the ability to do so.
You are arguing about what a bunch of obese old guys WANT to do, which is not the same as what they CAN do, or what is most likely to happen.
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Frodo for Fed Chair!
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Just have to be careful what is wished for.
Rates towards 3%+ in this environment?
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Rates to 2.5% at least. Maybe 3 to compensate for Yellen’s mismanagement… but I would say stop at 2.5% because the Fed has already demonstrated such ineptitude in central planning. I wouldn’t trust them to pick the correct amount of ‘overshoot’ anymore than undershoot. No matter how many academic degrees they wave around, they are proven failures at real life.
And yes, normalizing interest rates means that borrowers can’t keep borrowing instead of growth. If something is really economicaly viable, then it should not rely on subsidies from savers. It is false economy to claim that short changing savers somehow makes the overall economy better — it doesn’t. Its stealing from savers (of which we have too few), and giving to debtors (of which we already have too many) — and net net it hurts the economy.
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Frodo for Fed Chair! ( What is he, about 4 foot something?)
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Surrounding oneself with people of the same mold (thinking) is a mistake all dictators make.
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Trump will kiss Yellens ring because mr market has given Trump his only notable achievement of his non presidency. Without the stock market rally Trump is the loser we all know he is.
Assuming the market keeps going ahead he will beg her to stay which brings up the question who will last longer. Trump or Yellen or Kim Jung Il? This is a sad piece of American history. Nobody wants to work in the Trump admin. He will BEG her to stay.
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So you have nothing to say about Warsh, the topic of the post. You just wanted to rant about how much you hate Trump.
Not helpful, not on topic. Rather immature of you
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“Don’t fix it if it ain’t broke..” R.R.
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None of these people can ever represent me or the middle class or the lower class.
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and neither does the President, the Fed is a cabinet position.
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@Ambrose — “…the Fed is a cabinet position”
The Fed is not, and never has been, a cabinet position. You obviously don’t know what you are talking about
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Obama added 12 tril in 8 years,trump gonna get close to that in 4,which is goin to necessitate around the clock 24/7 money printing,just for Harvey and Irma talking at least a tril,student loan bailout 2 tril, inevitable war with venuzuela/china /NK 2 plus tril,which means just to get through mid terms dept ceiling will have to be raised 3-4 trillion at least
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Another Wall Street clown who diligently worked on “saving the financial system” by doing the only thing his kind will ever be capable of: Stealing from productive people, in order to “save” banksters from the free market. No doubt a huge change from those who came before him…. Not!
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I would not trust Trump’s instincts with managing Fed.
He may get lucky by picking up a right governor for the wrong reasons.
I have total distrust and contempt for his choices based on personal knowledge of Manhattan
socialites. Wrong pool of candidates by my standards.
Meritocracy seems to be a foreign concept to Trump’s administration.
He does not learn from his own errors and mistakes.
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“Meritocracy seems to be a foreign concept to Trump’s administration.”
It’s the Federal government that Trump has been elected to run. You can’t seriously expect anyone in government to be concerned about merit.
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Has he ever acknowledged his own mistakes and errors?
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If Warsh raises rates while other Central Banks are still playing with Q.E.; then the risk of a massive capital outflow will crush economies of other countries. Surprisingly rates would remain steady as debt defaults in the US are offset by capital inflows until those inflows dry up.
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“There’s only one f–king sniper out there! We’re not leaving Doc J and Eightball out there. ”
The only “sniper” out there is interest rates. Is Mr. Warsh going to play hero and take them out? It’s doubtful. As for Doc J (residential mortgage) and Eightball (government pensions) we aren’t saving them from their due fate, either.
“They’re wasted! You know that!”
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Warsh’s wife has a net worth of more than $2 BILLION.
Anyone that thinks he gives a rat’s a** about ” an aging population that lives off a fixed income” is delusional (at best).
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I doubt anyone in Washington DC cares personally, but they do care about keeping their own lifestyle going.
And you are very naive to believe they don’t think about keeping the masses entertained and compliant. If grandma and gramps are out of money, its going to have a negative effect on DC’s lifestyle.
If you don’t think Washington DC knows how good they have it with a global reserve currency, then you clearly aren’t paying attention. If you think billionaires aren’t aware of global reserve currencies… well you may not have met any of them, but lets just say they want their billions to still be worth billions tomorrow, even if the rest of the country is still poor.
If the billionaires raise interest rates to protect their stash, and that action puts you into bankruptcy? Well too bad for you.
Both things — keeping gramps / grandma quiet, and maintaining reserve currency status — are essential to the culture of Washington DC.
Ask Saddam Hussein or Momar Qaddafi if they think Uncle Sam will notice efforts to undermine reserve currency status….
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PS — keeping reserve currency status goes hand-in-hand with the petrodollar… the stuff that makes the military go around. Mess with the price / availability of crude oil (and refined products like jet fuel and diesel for army trucks/tanks) and you will have Washington DC’s undivided attention.
PPS – Congress needs their armored limos and private jets a lot more than they need you to eat.
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Mish the last time I got involved with you and Medex man I got hammered by the two of you deservedly so. Anyway higher interest rates is the right move I admit, but it will be so very painful for a whole bunch of reasons, so I wonder if Warsh, the rest of the Fed and Trump have the balls to stand pat when the big dogs, to include the banks, hedge funds, US corporations and leveraged stock market investors begin to lose their ass as rates begin to rise. I really do believe, and honestly admit that in my own mind, the loses and the screams that will surely come from an over indebted world that thrives on extremely low interest rates, will force an about face at some point to forestall worldwide defaults, sadly that were needed 10 years ago to wipe out all the debt, as painful as that would have been, now will be impossible without social upheaval and probably war.
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Medex Man you r on a roll tonight, no sarcasm here, and I agree with most everything you have said not that u need my approval, tho I hope my approval doesn’t diminish many of the points u have made here tonight!
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The only negative thing I might add that is that higher interest rates and a higher dollar will hurt me as an oil producer, but more importantly will really goose the trade deficit.
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i don’t believe we’ll have good fed policy as long as their is a dual mandate. the fed should simply be concerned with inflation and act as the lender of last resort if liquidity fails during a crisis. right now the fed has too many missions and there is no way it can do all of them well.
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A dual mandate is actually impossible, something I have mentioned before
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Hate on Geithner as much as deserved, he understood that the US casino must always pay out.
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There is no smart money at the Fed.
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They call their impaired MBS, “deferred assets”, which is Orwellian to the tune.
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Different clown, same circus. It’s like Barnum and Bailey nominating a new head clown for the big tent. Oh boy, can hardly wait.
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inflation was higher during volcker. the cartoon is cute, and while a gree the rates are too low, a better graph would have shown it versus inflation or on a real rate basis
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A non-controversial pick from the Trump Administration – imagine that? Trump wants a booming economy first and foremost so the pace of rate increases can’t be something that delivers a pre-emptive strike to inflation. The inflection point dynamic won’t be about who is running the Fed but seeing if US Economic growth can achieve 3 percent or more annually. If GDP can increase at a greater rate than the growth of the National Debt, then nothing to worry about. If a more rapid growth can prove to be sustainable, then interest rates can be tweaked at that time.
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“The problem with Yellen is she has done too much with no effect.”
Well, Greenspan and Bernanke got the stock and housing markets to crash. That was quite an effect.
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Bilderberger what else do you need to know
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