Regime Change at the Fed: From Big Bank Bailouts to Local Productivity

Image by ScheerPost.

On January 30, when former Federal Reserve board member Kevin Warsh was nominated by President Trump as the central bank’s next chair, markets sold off and gold and silver plunged. Investors were positioned for a “dove,” someone inclined to cut rates aggressively and keep money loose; and Warsh has a long-standing reputation as a “hawk.” 

So wrote Michael Nicoletos in an article titled Everyone Is Focusing on the Wrong Thing. But Nicoletos and some other commentators are seeing something else on the horizon – a rebalancing of the banking system through an overhaul of the Federal Reserve itself. In recent months, noted Nicoletos,  Warsh has argued that the central bank’s bloated balance sheet” has made borrowing “too easy” for Wall Street, while leaving “credit on Main Street too tight.” That contrast — abundant liquidity for the largest financial institutions, scarcity for the communities that actually generate economic activity — is a structural flaw that has unbalanced the American economy.

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