International Man: Kevin Warsh looks likely to replace Jerome Powell as Fed chair, and the market seems to assume he’ll be more willing to cut rates than Powell was. What’s your take on him?

Doug Casey: Before we look at Warsh, let’s look at what a Fed Chair can do.

The Fed has 12 governors, but we generally only hear about the Chairman. While he’s only got one of the 12 votes, the others traditionally follow his lead because of his prominence and extra powers. He’s the major, even the sole, spokesperson for the Fed. He has several emergency powers, which in today’s unstable world are more important than ever. It’s the Chair who gives testimony to the Congress, spinning things as he thinks best. He has direct control over the Fed’s roughly 25 thousand employees, including about a thousand PhD economists.

The Fed chair is also the head of the Fed Open Market Committee, the FMOC, which is the most important part of the bureaucracy because it determines what the Fed buys and sells, and sets interest rates. The FMOC also has 12 members, including seven of the Fed governors, plus five of the twelve regional Reserve Bank Presidents.

It’s often said that the Fed Chair is the second most powerful man in the country. I presume Warsh took the job, although he’s already rich (said to be worth about 200 million dollars), because he wants to become even richer, more powerful, and more famous. He was the youngest ever appointee to the Fed at age 35. He’s now 58, so he’s been walking the halls of power for his entire life. His personal wealth is trivial next to that of his wife, worth almost two billion dollars as an heir to the Estee Lauder fortune.

I suppose Trump picked him because he thinks he can get him to keep interest rates low and print lots of money, which is good for financial assets, at least in the short run. Who knows? Trump seems to pick his subordinates mainly because they’re photogenic and he thinks he can control them.

International Man: Warsh has suggested that the AI productivity boom could give the Fed cover to cut rates, much like Greenspan used productivity arguments during the dot-com era to justify easy money. What is really going on here?

Doug Casey: The Fed’s dual mandate is price stability and stable high employment. It’s usually under pressure from presidents to expand the money supply promiscuously, as well. That increases economic activity by making everyone feel they’re richer than they really are. Few, however, like to mention that increasing the money supply is exactly what increases the rate of inflation. Even fewer like to mention that the Fed is the actual engine of inflation since it controls the money supply.

I’d like to see the Fed abolished, although I realize that that’s a completely unrealistic goal in today’s world.

Regarding AI, I suspect that Warsh will have a tiger by the tail. Trillions of dollars are being allocated to the area, and it’s questionable whether there’s going to ever be a profit from all that. At some point, the Magnificent Seven will be thinking more about return of their capital than the return on their capital. Even assuming that AI doesn’t take on a life of its own and get completely out of control, the ultimate dystopian nightmare.

At a minimum, AI is the epicenter of a gigantic financial bubble. A lot of the participants could go bust, having allocated way too much capital towards something which, however important, won’t be terribly profitable in the near term. They might be deemed too big to fail, which means that Warsh will be pressured to bail out big players in the AI space over the next few years.

International Man: Powell was no sound-money man, but compared with what may be coming, he could look restrained. If Warsh is more inclined toward easy money, what does that mean for the next phase of inflation—and for people already struggling with rising prices?

Doug Casey: Who knows what Warsh or any other Fed Chairman will do? Few, if any, of them have any firm economic or philosophical beliefs. One thing that’s certain is that since Trump appointed him, Warsh is likely to feel an obligation to do what Trump wants. As a lifelong member of the elite, I think we can plan on Warsh doing what he needs to maintain the status quo. But it really makes no difference what Warsh thinks, since if he fails to print money, the whole US government Ponzi scheme will collapse.

That’s not to say that somehow maintaining the current status quo will be good for the average guy, however. Prices for necessities—food, shelter, gasoline, medical care—are certain to go up much faster than his wages. Warsh will find himself painted into a corner. He can either create trillions of new dollars to maintain the US government. Or fail to do so and invite a catastrophic deflation as America’s mountain of debt collapses upon itself. I have no question that he’ll choose the first alternative.

International Man: The US government is running massive deficits, interest costs are exploding, and the Fed may soon have a chairman more willing to accommodate Washington. Is the central bank now effectively trapped into monetizing the debt, no matter what it says publicly? And what are the implications?

Doug Casey: The Fed is critical to the continued existence of the US government. Somebody needs to finance the US Government’s debt. It’s certainly not going to be the Chinese or the Japanese, who see it as a hot potato, an unrepayable liability. Nobody besides the Fed can be counted on to buy it at this point, certainly not at interest rates anywhere near their current level.

In the past, the powers that be talked about the Fed “fine-tuning” the economy. That term is no longer used. Everybody recognizes that unless the Fed prints up adequate money, “this sucker is going down,” as the Baby Bush once termed it during the 2008 financial crisis. I suspect the next crisis will be much, much bigger.

International Man: How does a Warsh-led Fed change your investment outlook—especially for gold, Bitcoin, commodities, foreign assets, and international diversification?

Doug Casey: At this point, it really doesn’t make any difference who the chairman of the Fed is, any more than it would have made any difference who the captain of the Titanic was after it hit an iceberg.

We can count on lots more money printing with resultant higher prices. Our investment policy over the last few years has been very successful, and the trend is still in motion for all of our assets to go much higher.

I think the biggest risk to the average American is that, to finance itself, the government will require all pensions and 401(k)s to invest in a certain percentage of government debt. That may hold the system together for a while, but at the expense of driving the final nails into the average American’s financial coffin.

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