Kevin Warsh has been nominated as the next chairman of the Federal Reserve.  After the announcement, gold and silver took their biggest price dive ever in terms of dollars in one day.

The announcement was perhaps a little bit of a surprise.  Warsh is more establishment than some others who Trump could have nominated.

Being establishment isn’t always bad, or at least it isn’t necessarily the worst thing.  When Trump is bombing 7 countries in one year, kidnapping foreign leaders, and seizing oil tankers in international waters, establishment sounds good in comparison.  Someone who is more establishment might be a little bit more cautious with the interventionism.

And so it goes with the economy and the Fed.  Trump is on the verge of recklessness right now.  He is as much of a socialist or more as the next politician.  He changes tariffs or the threat of tariffs almost daily and on a whim.  His administration is threatening criminal charges against Jerome Powell, and it seems obvious that it is because Powell has not been aggressive enough in lowering interest rates.

The Fed may be an evil institution, but I think we would rather a group of Fed members setting interest rates and monetary policy over Trump.  At least the Fed gives the financial establishment what it wants.  It will give inflation and lower rates, but only to a point.  Trump wants lower interest rates because he woke up in a bad mood and thinks it will grow the economy.  It might grow the bubble, but not the economy.

Kevin Warsh – A Yes Man?

Warsh was on the Fed Board of Governors from 2006 to 2011.  This was during the financial crisis of 2008.  So, he was part of the massive bailouts and quantitative easing (monetary inflation).

Still, he is somebody that seemed to go along with the consensus.  If anything, he is seen as being on the more hawkish side, meaning he doesn’t want to inflate as much as other people.

The U.S. dollar had been tanking recently, and gold and silver had been on an almost parabolic run up in price.  The announcement of Warsh temporarily reversed that.

Given Trump’s behavior in his first year in office in his second term, many people expected, and rightly so, for Trump just to appoint a total “yes man” who would do exactly what Trump wanted.  There is more of a question with Warsh on whether he will just do whatever Trump says.  He will probably throw him a bone and lower the Fed’s target rate right when he gets into office (if it hasn’t been lowered more already), but we can’t be certain after that.

Remember, Trump appointed Powell in his first term, and Powell doesn’t necessarily listen to Trump any longer.  Powell generally just goes along with the consensus.  (It isn’t that Powell is forming the consensus.)

Warsh is a fairly establishment pick.  The financial media like it because it supposedly helps restore “Fed independence”, which sometimes just means Fed secrecy and doing the bidding of the establishment.  The Warsh pick helps the U.S. dollar in the short run, as we aren’t getting someone flashy who will just try to drop rates to zero as soon as he enters office.

Warsh will be something of a “yes man” to Trump initially, but in the longer run he will be more of a “yes man” to the financial elite than to Trump, which doesn’t always mean a weaker dollar.

Betting on a Stable Dollar

The reaction to Warsh’s nomination by investors indicates that they think he will be relatively hawkish.  It is probably safe to bet the opposite.

Even if Warsh is in the establishment and slightly hawkish camp, he won’t really be the one determining monetary policy.

The government keeps spending more and more money.  There is almost no desire to cut anything back.  Trump is proposing a $1.5 trillion military budget, and he has a lot of countries in his sight for bombing or regime change.  Meanwhile, the so-called entitlement programs continue to grow.

We will likely hit a national debt of $40 trillion in 2026.  And that is if we don’t have a recession.  On top of it, price inflation is still above the 2% mark, even according to the government’s statistics.

The economy is not in good shape.  The Fed’s only solution is to manipulate interest rates lower and create more money out of thin air.  Unless someone like Ron Paul had been nominated as the next Fed chair, there is no sign that this out-of-control train is going to come to a stop without major wreckage.

Kevin Warsh will have no other answer than to create money to bail out the economy and the reckless Congress.

This is why any strengthening of the U.S. dollar is likely to be temporary.  A major pullback in gold and silver was inevitable anyway.  They had run too far, too fast.

It is a safe bet that the next Fed chair cannot stop this train wreck.