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The Fed's New Plan to Shrink $40T Without Paying It Back

ITM Trading Podcast

# Full Transcript

**Podcast:** ITM Trading Podcast

## Transcript

Regime change is coming to the United States. That's not my phrase. That's the phrase being used by the man who just became one of the most powerful people in global finance, Kevin Warsh, the new chairman of the Federal Reserve. We're at the forefront. We're at a transformational moment in U.S. economic history. This could be a golden age.

And while most people are debating whether the Fed is going to raise or cut rates this year, what Warsh is talking about is much bigger. And when I heard him say that, I had a question. Why would the man who just took control of the world's most powerful central bank say that the Federal Reserve itself needs a regime change? See, when most Fed chairs take office, they talk about continuity, stability.

But the more I dug into Warsh's speeches, the more I realized he's talking about changing the way the Federal Reserve thinks about inflation, its balance sheet, even the role the Fed plays in the economy. So the real question I want to answer today is what does Kevin Warsh's vision of a new monetary regime mean for the rest of us? To answer this, we have to go back to 2008 because 2008 was more than just a financial crisis.

It was the beginning of a new monetary era. While America's debt had been growing for decades and the Fed had intervened before, there was still a widespread belief at this point that markets were ultimately responsible for their own mistakes. And looking back, every financial crisis had an ending. The recession would come, the excess would be flooded out, and eventually the economy would stabilize.

But in 2008, policymakers chose a different path. Rather than letting the debt cycle run its course, they decided to flood the system with money. And that decision changed the trajectory of the global financial system. Rather than being a bridge across the crisis, instead it became the foundation of a new monetary system with new rules. This is where Kevin Warsh enters the story. Because he's not arguing that the Fed has made one mistake.

He's arguing that markets as a whole are too dependent on central bank intervention. That the Fed is too reliant on expanding its balance sheet. And that trust in the institution has collapsed completely. In fact, Warsh has been an outspoken critic of the Federal Reserve. But criticizing the Fed is easy, solutions are much harder. But this is where it gets really interesting. Kevin Warsh has repeatedly pointed back to the work of economist Milton Friedman,

who argued that inflation is ultimately a monetary phenomenon. Inflation is made in Washington because only Washington can create money. Consumers don't produce it. What produces it is too much government spending and too much government creation of money and nothing else. In other words, inflation isn't caused by supply chain issues or greedy corporations. There are lots of factors that can cause prices to go up short term.

But sustained ...

The Fed's New Plan to Shrink $40T Without Paying It Back

Transcript

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The Fed's New Plan to Shrink $40T Without Paying It Back

Transcript

Built for investment professionals

Every day you wait, your competitors are findingedge in conversations you're not hearing.

Every day you wait, your competitors are finding
edge in conversations you're not hearing.