Let’s investigate the theory that a “great new game” is underway.
The Great Game for the Fed
Food for Thought
Food for thought.
The Great Game Comes for the Fed. Kevin Warsh’s arrival at the Federal Reserve would mean more than a new chairman. It would mean that the great new game, the struggle over energy, industry, data, payments, borders, and national power, has finally reached the central bank. The old pretense that the Fed stands above politics, above history, and above the national interest is collapsing. Good. It never was true.
Trump and Andrew Jackson belong to the same American tradition: both understood that concentrated financial power quickly becomes political power. Jackson fought the Bank of the United States because he saw that institutions claiming neutrality often serve entrenched elites. Trump is now applying that same instinct to the modern monetary establishment. The target is no longer Nicholas Biddle’s bank but the western central-bank system, the Fed, the ECB, the Bank of England, and their peers, that has spent decades passing ideology off as expertise.
That ideology is a stale misuse of Keynes. The General Theory was written for depression conditions and then marketed by generations of disciples as if it were a timeless manual for all economies in all eras. That is how the Fed ended up treating supply shocks as inflation, backward-looking shelter data as revelation, and every market tremor as an excuse for balance-sheet manipulation. Across the west, the same script still reigns: manage aggregate demand, massage expectations, defend the inflation target, and assume more central-bank discretion is always a mark of sophistication.
Warsh represents a different possibility. He and Treasury Secretary Scott Bessent are linked through Stanley Druckenmiller, which means a Warsh Fed would not operate in splendid isolation from Treasury but in strategic coordination with it. That will horrify the status quo, and it should be expected. The status quo should be horrified. Trump’s America First policy is not just about tariffs or border control. It is about restoring economic sovereignty through innovation, productivity, energy abundance, and supply-side reform.
That is the regime change now coming for the Fed and if it succeeds, it will challenge the entire western central-banking consensus. Warsh grasps something the Fed’s academic monoculture does not: stronger growth is not inherently inflationary. If productive capacity is rising, faster innovation, more investment, and better supply conditions can deliver expansion without hotter prices. Volcker, for all his tensions with Reagan, understood the same underlying truth: credible money was a precondition for durable, non-inflationary growth, not an excuse to suffocate productive expansion forever. Bernanke and Yellen turned emergency activism into doctrine and made Wall Street dependent on central-bank liquidity. Shrinking the balance sheet is not radical. It is normal.
The great new game is not really about a single appointment. The United States is exiting Pax Americana and entering a new era of economic sovereignty, much as the early republic had to break free of British imperial finance after the Revolution. That transition requires regime change at the Fed. Kipling in Kim wrote that “when everyone is dead the Great Game is finished. Not before.” With the appointment of Kevin Warsh, the monetary front of that a new chapter in the great game truly begins.
But can one man alone break decades of Keynesian dogma embedded across the western central-banking order?
Questions of the Day
Q: How many votes does Warsh get?
A: One
Q: How many Fed governors are there?
A: Seven
Q: How many voting FOMC members are there?
A: There are twelve voting members. This includes the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four other Reserve Bank presidents who serve one-year terms on a rotating basis.
Q: Does Warsh appointment necessarily mean anything?
A: No. His appointment means something if and only if a majority of the FOMC and governors are willing to go along.
Q: Is there a regime change?
A: Same answer: If and only if a majority of the FOMC and governors are willing to go along.
Q: How likely is that?
A: I don’t know, but it’s less likely than most cheerleaders think.
A: Why?
A: The answer is a question: How often do people change core beliefs?
After 7 paragraphs of why Warsh is going to make a difference, Throne asks the right question.
“But can one man alone break decades of Keynesian dogma embedded across the western central-banking order?”
Heck, I am not even sure Warsh wants too. Where is the evidence?
An Immediate Set of Problems
Warsh is going to run into immediate problems.
For example. he wants to unwind the Fed’s balance sheet. I am in total agreement. Warsh should do this.
Q: OK, what’s the problem?
A: Unwinding the balance sheet will put upward pressure on treasury yields and mortgage rates. Warsh got the job because Trump believes Warsh will lower rates.
Q: Anything else?
A: Yes. Bernanke wanted QE to give the fed more control over rates. QE does that. And unwinding QE has proven problematic. That’s why the Fed reversed QT and when back to QE. So, what’s it going to be?
Warsh’s Actual Voting Record
Warsh accurately blames the Fed for missing the boat on many things. But what is Warsh’s actual track record while on the Fed?
President Trump’s nominee for Federal Reserve chair, Kevin Warsh, has consistently voted with the FOMC consensus during his time as Fed governor, never issuing a dissent.
Kevin Warsh served as a member of the Board of Governors of the Federal Reserve System for just over five years, from February 24, 2006, to March 31, 2011.
So, that’s 5 years with 0 dissents.
Disagreement Over QE
I do credit Warsh for his stance on QE.
He left the Federal Reserve in March 2011, before his term ended, due to policy disagreements with Chairman Ben Bernanke regarding the expansion of the Fed’s balance sheet (quantitative easing) following the financial crisis.
Warsh was skeptical of further stimulus, favoring a more cautious approach to bond-buying. Key reasons for his resignation included:
- Policy Differences: Warsh was the only governor to openly question the $600 billion plan to purchase Treasuries to lower long-term interest rates in 2010.
- Concerns over Inflation: He feared that the continued expansion of the Fed’s portfolio would lead to inflation.
Warsh was on the right side of quantitative easing.
However, the Federal Reserve effectively restarted quantitative easing (QE) in December 2025 following the end of its tightening cycle, shifting to expand its balance sheet by purchasing Treasury securities to ensure “ample reserves”.
While sometimes framed as “reserve management purchases,” this action involves buying roughly $40 billion in Treasury securities monthly.
The Return of QE
Please consider The Return of Quantitative Easing
After several years of quantitative tightening, the Fed is restarting QE amid persistent market and policy pressures.
December 2025 marks the official end of the largest cycle of quantitative tightening the Federal Reserve has ever undertaken.
From a peak of $8.93 trillion in June 2022, the Fed has allowed $2.4 trillion in maturing assets to roll off its balance sheet. But Chair Powell announced on December 10 that the Federal Open Market Committee (FOMC) has decided it must begin expanding its balance sheet again to maintain “ample reserves”—code for maximizing policy discretion and insulating itself from market forces.
Before the Global Financial Crisis (GFC), the Fed conducted monetary policy primarily through open market operations. Raising its target interest rate—the rate in the overnight interbank lending market—required the Fed to sell bonds from its balance sheet until the supply of reserves contracted enough to push up the federal funds rate (FFR). Conversely, lowering the target rate required purchasing bonds until reserves expanded sufficiently to pull the FFR down.
Another feature of this approach was that the Fed also “defended” its target against changes in market conditions. If demand for reserves (liquidity) increased in private markets, the Fed would respond by increasing the supply of reserves through additional bond purchases. In this framework, the Fed both engaged with and responded to private markets.
That changed after the GFC, when the Fed dramatically expanded its balance sheet, lowered its target rate to near zero, and began paying interest directly to banks on reserves held at the Fed. After 2008, interest rate targeting became largely a matter of adjusting the rates the Fed paid to banks and other counterparties, rather than buying or selling bonds in the open market.
This shift allowed the Fed to purchase bonds with relative impunity, since the interest rate it targeted was no longer directly constrained by reserve supply. The result was a series of bond-buying programs known as quantitative easing (QE). Several rounds of QE under former chair Ben Bernanke added trillions of dollars to the Fed’s balance sheet. By December 2019, the balance sheet stood at roughly $4.1 trillion, up from less than $1 trillion a decade earlier.
But rapid growth in the demand for reserves—effectively, demand for borrowing—driven by persistent federal deficits will exert upward pressure on interest rates, potentially pushing them above the Fed’s target.
Yet with a voracious Treasury needing to borrow trillions more each year, the FOMC appears to believe it is time to expand the balance sheet through QE once again. Chair Powell may hope to thread the needle among competing views within the committee, but the Fed’s current course looks uncomfortably close to capitulation to political pressure. If inflation remains at or above 3 percent over the next year, we will have our answer.
The Obvious Problem
The obvious problem no one seems to be discussing is Warsh wants two incompatible things.
Warsh wants to unwind (sell) about $6.7 trillion off the Fed’s balance sheet (a process that would put upward pressure on rates), while actually lowering rates.
I suppose this could be done at a miniscule pace, but then the Fed might then struggle with market forces.
That is why the Fed reversed with discussion of “ample” reserves.
If I can suggest a starting point. Just stop QE and all rollovers of interest and see what happens.
An Even More Fundamental Problem
Why does any member of the Fed, including Warsh, believe they know what the interest rates should be?
They don’t. I don’t, and nobody else does either. Yet, Warsh’s view is lower rates. Why is he right?
Warsh is just another charlatan, but with a different view on where rates should be.
He got the job not because of his accurate assessment on QE, but because Trump expects Warsh to deliver rate cuts.
There is no reason to expect Warsh can deliver on cuts. Indeed, I bet Warsh is destined to become the first Fed Chair dissent in history. Won’t that be fun?
What Should Warsh Do?
- He should announce “I don’t know where rates should be, they don’t know, and nobody else knows either.”
- He should stop all forward guidance.
- He should press to end QE
- He should say the desired rate of inflation is zero.
- He should press to let the market set rates.
Whether there is upward or downward pressure by the markets on interest rates, Warsh should just let it be. Otherwise, the Fed is in the business of using the balance sheet management or twist operations to force rates
Warsh is doing #3. I suspect he will do #2.
But unless he does #1, #4, and #5, he is just a slightly better charlatan than what we now have in place.
Culture Clash Coming Up
On March 30, 2026, I noted Powell Warns the Markets and Trump that His Patience with Inflation Has Limits
Powell’s speech was to Harvard students but read between the lines.
Powell’s warning was aimed straight at Trump. A culture clash is coming up if Powell stays on.
Inflation Has Been Above the Fed’s Target for 5 Straight Years
Please note Inflation Has Been Above the Fed’s Target for 5 Straight Years
The Fed’s preferred measure of inflation has been above 2 percent since March of 2021.
Yet Warsh wants to cut rates.
Q: What exactly does he know that the rest of the Fed doesn’t?
A: Nothing actually. He has a belief inflation will come down without any clues how the war will play out.
Q: Why does he have that belief?
A: If he didn’t, he would not get the job.
The Great Game Begins?
James Thorne says “With the appointment of Kevin Warsh, the monetary front of that a new chapter in the great game truly begins.“
I wonder if he cares to reassess.
Musical Tribute
Mish for Fed Chair
On July 9 2025, I posted I Officially Announce my Availability to Become the Next Fed Chair
Trump considers naming the next Fed Chair early. I have a fifteen-point plan.
Mish’s 15-Point Fed Plan
- Explain to the nation why we don’t need a Fed and how independent central banks have created boom-bust cycles of increasing amplitude over time. The main corollary is history shows the one thing worse than independent central banks is a central bank run by politicians, frequently ending in hyperinflation.
- Surround myself with qualified insiders who understand the Fed but also believe in the mission to end the Fed.
- Stop paying interest on reserves, phased in over 18 months.
- Wind down the Fed’s balance sheet totally in 2-3 years.
- Require that assets available on demand such as checking and savings accounts are truly available on demand. That means demand deposits are parked in overnight US treasuries. This would be phased in over two years. As a result, we would have genuine safekeeping banks. … ….
Note that my plan eliminates the need for FDIC. All demand deposits would be parked at the Fed. Runs on the banks would not occur from duration mismatches.
Please click on the above link for the remaining details
I expected a call from President Trump. I was shocked when it did not come.
Related Posts
November 13, 2025: The Fed’s Balance Sheet Is $6.5 Trillion, the New York Fed Wants More
Believe it or not, more QE is coming right up. But why?
April 25, 2026: Mideast Dollar Funding Panic, Bessent Portrays it as Strength
I was asked to comment on US dollar swap lines to Mideast oil producers.
April 26, 2026: Is China Selling US Treasuries? AI View, Consensus View, the Right View
Here are three viewpoints, one is correct.
Addendum
No one believes the inflation numbers anyway…..at least those of us that go to grocery stores and buy other goods and services out of our OWN pocket. Forcing rates lower while true prices continue to soar is all a shell game anyway.
Figures lie and liars figure.
Remember when Mish predicted that trucks would be driving themselves across the country by now?
Since when is Germany an example of sound strategy? They levelled their nuke plants in exchange for green alternatives, and now are opening coal plants.
This blog has been garbage for a while. Downhill ever since the Fed Corollary article. Peak Mish was years ago.
You think the blog is garbage, so you came here to eat?
And then you dive in the dumpster and comment?
By the time his term begins, there will be more than 40 trillion reasons why he will wind up as Trump’s (and the US Treasury’s) puppet.
What does it mean?
It means the new Fed Chair is a guy who is so afraid of Trump that he cannot clearly answer “who won the 2020 election”
Tell me again how he’s gonna play it straight
You can’t fight the ABA. Does anyone know where money comes from? The banks pay for the deposits that they already own. Banks don’t lend deposits. The only way to activate monetary savings is via intermediaries outside of the payment’s system.
FDIC insurance should be marked down to $100,000.
–Danielle Dimartino Booth’s book: “Fed Up”, pg. 218
“Before the financial crisis, accounts were insured up to the first $100,000 by the FDIC. That limit kept enormous sums in the shadow banking system. After the crisis, the FDIC raised the insured account limit to $250,000. But trillions of dollars still sate outside the traditional banking system. The “safe” money had no place to go expect money market mutual funds and government securities, leading to a shortage of T-Bills and a corresponding drop in yield.”
New Boss – Same As The Old Boss.!
Print – Print – Print – Til The Collapse.!
The QE part of this discussion is of great interest to me in that I have been observing its start while simultaneously watching the Fed raise interest rates.
With the massive increase in spending, the failure of DOGE and the incredible war spending it seems that the money supply has to expand.
The stock and bond markets calmness in all of this is a testament to Powells ability to jawbone markets.
How the supply shocks hit will tell a tale of global production re-alignment. I would not want to be living in the Middle East or Western Asia.
What’s going on with shipping YT had a great summary of the fact that the floating oil is all used up and the pain gets real starting this week.
https://www.youtube.com/watch?v=XODPzVrIr9w
A bit long but the report support that almost all vessels in transit when this war started have made it to their destinations. the “Ghost fleet” is another thing and some of them are buffering along with new or enhanced supplies coming on line. FSOP’s have finally found tankers available to off-take their inventories so that’s buffering as well. But for sure in the next two weeks things are going to start to tighten dramatically!
“But for sure in the next two weeks things are going to start to tighten dramatically!”
Mere coincidence that we are endlessly told two weeks is exactly the time by which Iran will develop a nuclear bomb?!
The key thing is an object for Trump’s blame deflection, playing to his base. Makes no difference if it is “Powell” or “Warsh.”
Reminds me of old porn films, where a pizza parlor was nothing but an excuse for rampant sex. Sub in “agency” for “pizza parlor,” and “grandstanding” or “blame deflection” for “rampant sex.”
“Why does any member of the Fed, including Warsh, believe they know what the interest rates should be? They don’t. I don’t, and nobody else does either. Yet, Warsh’s view is lower rates. Why is he right?”
The right question. The trillion dollar question. And the one the FOMC never bothers to focus on seriously.
An answer: political expediency. This helped me get a cheap mortgage, but might have kicked a can to hurt another generation.
The “Food for Thought [Annoyance]” at the head by James E. Thorne is a florid collection of pseudo epic overwrought and melodramatic rhetoric featuring sweeping historical sophomoric glosses. Highfalutin drivel.
The idea that Kevin will root out Keynesianism from economic discourse [what happens when you take out the heart?] is laughable.
No central banker will ever to anything encourage the dynamic of the economy.
They are there to protect special asset classes, not to gun any economic activity.
No bank official will ever do anything to instigate a market repricing of over-inflated privately held assets to shrink the vig on all the fraud and speculation and diminish the returns of financialization or the yield of the rentier economy.
The entire point of the federal reserve is to stop any major repricing downward events. But the other side of that is to regulate banks and maintain interest rates at a level that speculative upward pricing movements are discouraged in the first place.
The point of the Federal Reserve or of any central bank is to finance the government’s deficit, to make sure there is never again a moment in which there is only 25c left in the Treasury. The rest is window dressing.
The essential purpose of government is to enjoy power. There may be individuals with good intentions, but they are subordinate to the beast.
A house of cards made with more Spades and Aces, is still a house of cards.
Only the finest, and Warsh will bow down to the genius
They all understand that lying to get their hands on the levers is necessary
Dear leader, President Donald Trump on Sunday said that Iran has mere days before its oil infrastructure could explode.
“What happens is that line explodes from within. Both mechanically and in the earth, something happens where it just explodes, and they say they only have about three days left before that happens,” he said during an appearance on Fox News’s The Sunday Briefing. “And when it explodes, you can never rebuild it the way it is.”
He’s an idiot.
They have performed shut-ins before all over the world and yes it alters the geology and production of the well. Flow stops and all of the momentum of the fluids stops with it. It is estimated that ultimate production from a well loses 10-20% of its ultimate capacity. But?
Todays technology can compensate for some of that and in some cases re-worked fields become more productive after being shut in for a decade or more.
One thing is for sure, we are not running out of oil as it is being found all over the place. Huge finds in Ghana, Brazil, Argentina, Nigeria and coastal oceans all over the world. Humans are really good at finding hydrocarbons!
This administration is in no hurry to get Middle Eastern production up and running nor do they care if the Strait of Hormuz is re-opened. Sucks to live in the Middle East or Asia.
If I understand Warsh right, one of his „innovative“ ideas is to cut the Fed rate (because that‘s what Master Trump requires) but then offset the monetary stimulus by raising the 10-year yield through QT. If he truly believes that this kind of monetary hocus-pocus will fly in today’s fiscal dominance environment, he is beyond sock puppet status.
Won’t make any difference, Trump has 999 days in office and 190 days till Congress likely switches hands. It’s actually 663 working days for Trump and his tariff strategy in tatters, Iran war going sideways and oil disruption already going to cause massive inflation or deflation (when it all crashes).
Only thing left to do now is position for profits from the events to come. Oh and watch the MAGA misery, you reap what you sow morons.
The only rule is, the more they do the more screwed up things get. The mistake is in thinking that a banker has magic powers that will make things better.
It seems to me that the USa is way past the point in the Empire Cycle/Arc that it would be possible to do points 1 -5 , even if the whole fed board wanted to
Between the special interests and the pain it would cause to ordinary voters, getting off the manipulation/debt drug is impossible unless there is a crisis that they are unable to control
Maybe it will all come out in the Warsh.
How does this add to Trumps pockets?
He doesn’t think about anything else nor does he care. You have a nice analysis but I don’t think it aligns with the objectives of the Pedo Of The United Stares.
I think Trump’s “brand” (his name in lights) is the true variable. If that breaks, everything in his publicity-driven world atrophies (actually, implodes).
And he copies aspects of Nixon a lot. One was Nixon’s arm-twisting of the Fed chair (Arthur Burns) pre-1972 election, to heat up the economy to juice electoral victory (proving very fragile and fateful later, for any who lived through the 1970s. Lower interest rates tipped a weakened system (from LBJ’s follies) into long term inflation). I think he sees a next chess move in manipulating election laws, but he is racing that this year. Hence the “SAVE America Act” or whatever they call it. It is a pivotal year. If power shifts away from Trump enough, he doesn’t just lose a ballroom ticket. He gets taken down politically in the most vicious available way. If so, the family inside deals will, I think, be a major vector potentially in his undoing. It involves all members of his hallucinated dynasty.
Nope.
He got the job because of who his father-in-law is (head of the WJC)…the same people that got us into the war with Iran. Once you realize (or admit to) this simple connection across all things to do with finance and politics, everything becomes crystal clear and much easier to analyze.
To wit: 1987 to 2018:
“ He feared that the continued expansion of the Fed’s portfolio would lead to inflation”
This is proof that Warsh, like many other economists, really does not understand that QE is not directly inflationary. The Fed balance sheet is not ‘money in circulation’. Bank reserves are a separate type of money from the rest of the money available to the economy. The other bs is still believing in the monetary origin of inflation. Of course, it is easier to blame the Fed balance sheet and people’s excessive salaries than corporate greed.
It tends to raise asset prices, especially home prices. I call that inflationary but most economists don’t
Outside money is still monetization.
sorry within 1 to 3 months
well what is almost guaranteed is a 10 to 30% drop in the stock market
since paul volker. greenspan etc same outcome something to keep
in mind