Committee for the Abolition of Illegitimate Debt

A good Republican, he became an adviser to the Bush administration on financial markets. He was heavily involved in the 2008 financial crash, becoming the liaison between the Federal Reserve FED
Federal Reserve Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/ under Ben Bernanke and the Wall Street banks. He advocated that the crashing investment banks should be turned into proper ‘banks’ so that they could receive Fed loans to bail them out. In this way, he helped save his former employer Morgan Stanley from going the same way as Bear Stearns or Lehman Bros.

So Warsh was the link man for the Fed in ensuring the banks were bailed out of the disaster of their own making. “He brought a lot of real experience, he knew these people on Wall Street — he knew the difference between when they were arguing their book and when they were bringing us good information — and that was very, very valuable,” said Don Kohn, the former Fed vice-chair. The then chair of Goldman Sachs, Lloyd Blankfein, the man who claimed he was “doing God’s work” at Goldman Sachs, loved Warsh. “Kevin was unflappable at chaotic moments,”

Warsh’s mentor is the billionaire hedge fund boss, Stanley Druckmiller, who also promoted current Treasury Secretary Scott Bessent. Druckmiller maintains regular contact with both Bessent and Warsh. Indeed, Warsh has worked as a partner in Druckmiller’s operations since 2011.

Warsh had been a Federal Reserve governor but resigned after the financial crash bailout when Obama took over the presidency and Fed chair Bernanke began to pursue a policy of ‘quantitative easing’ (QE), where the Fed pumped billions into the banking system to support it and keep interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. low. Warsh was opposed to QE. He was a good ‘Austrian school’, free market man. So he saw the Fed monetary pump as causing “misallocations of capital in the economy and the misallocation of responsibility in our government.” Warsh has long believed that central banks were addicted to ‘printing money’ and thus encouraged “recklessly large public sector deficits”. He wanted no excessive funding for the economy and no excessive government spending. Quoting Chris Giles of the FT here, he thinks the Fed governors “should stick to their knitting on inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. and not get distracted by environmental concerns or the distribution of income.” Reducing inequalities is not on Warsh’s agenda.

As a monetarist a la Milton Friedman, he then claimed that QE would lead to runaway inflation. As we now know, it did not. As I have shown in other posts, the monetarist theory of inflation is faulty because it assumes that money drives supply, when it is the opposite; and it fails to account for ‘hoarding’ or increased money supply being used by the financial sector for speculation and not for lending onto the wider economy. That is what happened after the financial crash in 2008-9 and explains the near-zero inflation during the Long Depression of the 2010s.

But now in 2026, after the inflationary spike following the end of the pandemic slump, Warsh is not worried about the Fed lowering its policy interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rate and causing inflation because this time AI is going to save the day by boosting productivity so much that it will be a “significant deflationary force”. As his mentor Druckenmiller put it “Kevin right now very much believes you can have growth without inflation.”

The interesting contradiction is that Warsh still wants to stop the Fed expanding the money supply as that is inflationary, in his view. So if the Fed reduces its balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. sheet further (which it did for a while under Powell) that could raise government bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. yields – unless, of course, the government makes significant cuts in spending and inflation subsides. Everything will depend on that AI productivity boost.

As Mohamed El-Erian, now an FT columnist and former head of the giant Pimco bond fund, saidabout Warsh: “I feel he’s much more of a known quantity and I am comfortable with most of his views.” It seems that financial markets agree: the dollar made a sharp recovery against gold on the news that Warsh had been nominated – as he is one of their own.