According to Kevin Warsh,( former member of the Board of Governors of the Federal Reserve from from 2006 to 2011), the Fed has no “plan B” and Washington has no strategies for growth. Well one thing is for sure, whatever they are trying, it ain’t working.

At the very crux of the financial crisis, former Fed governor Kevin Warsh notes, “experimental extreme monetary policy,” had the “right risk-reward”, but, he warns, in this excellent (and somewhat chilling) discussion at the Milken Institute, “we left a financial crisis more than for years ago.” While the politicians may ‘prefer’ to think of this as a crisis – and indeed “for them it is a crisis as they preside over an economy that refuses to grow,” which has tended to lead to loss of office, but, Warsh condemns, “they have run out of excuses.” Over the last several years, “[the Fed] has over-promised and under-delivered,” and the bank’s most important asset – credibility – is under attack.

The Fed has “enabled” Washington to do nothing, since the politicians expect the same “rabbit out of the hat” rescue that occurred in the darkest days of the financial crisis. This means no growth strategies (“the mix of policies has to be right”) will occur. Since the financial crisis, Washington has done its level best to focus on GDP in the next quarter, or perhaps the election, and precious little beyond that short-term horizon. Warsh concludes, “There Is No Plan B.”

The Fed has fewer degrees of freedom and the rest of Washington is not coming to the rescue; and furthermore “the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested – and will not prove to be successful.

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Source: ZeroHedge

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