Central Banking Made Real Simple

I got a bit of a shock on Friday, when my gold ETF went down by 10 percent. It happened to be the day that President Trump nominated Kevin Warsh to be chairman of the Federal Reserve Board.

Actually, if you look at gold prices, they started down the day before when, presumably, the folks in the know and Somali insiders in Minnesota started to sell.

Could it be that Kevin Warsh will stop the century-long dollar inflation, where the dollar has lost about 99 percent of its value through a couple of world wars and three or four credit crises?

Kevin Warsh, if you check his Wikipedia page, is not a fan of wall-to-wall “quantitative easing” or QE. As a member of the Federal Reserve Board in 2008 he backed QE to get out of the spiral dive, but opposed “QE2” when the Fed implemented it in November 2010.

Warsh told his colleagues that he would only vote for QE2 out of respect for Chairman Bernanke: "If I were in your chair, I would not be leading the Committee in this direction, and frankly, if I were in the chair of most people around this room, I would dissent."

After a decent interval, Kevin Warsh resigned from the Federal Reserve Board in February 2011.

If you want to know what QE2 did for the world, I made over 400% in the 15 years between 2010 and 2025 just sitting on SPY and QQQ.

You Gen Xers and Millennials and Gen Zers: pay no attention to that Boomer behind the curtain!

How do we make this tale of inflation and deficits and quantitative easing Real Simple just like Sen. Iselin wanted?

It’s like this: crashes and crises occur when borrowers can’t pay their debts.

In 1929 ordinary people were buying stocks with mostly borrowed money. Then the stock market tanked and they couldn’t pay back their loans and 5,000 banks failed. In 2008, after a decade of low-down mortgage loans, lots of people defaulted on their mortgages. Result: end of the world. Almost.

In venture capital land it’s different: you understand that the startup will probably fail. If the startup turns into an Amazon or a Google, everybody buys superyachts. But if it fails, better luck next time.

That’s it. Debts must be repaid; equity not so much.

Right now, I am reading, a lot of the AI guys are borrowing money to build out their mega-server farms.

Hello Houston! We Have a Problem! What happens if 75 percent of the AI firms go broke when the AI bubble bursts sometime in the next decade? Suppose those eeevil AI billionaires default on their loans?

Sen. Warren! Are you paying attention?

Now I am reading a history of the last five technological revolutions and their booms and busts: Technological Revolutions and Financial Capital by Carlota Perez. At some point, Perez writes, people get overexcited and everyone piles into the New Thing just before the bubble bursts.

I predict the next credit crisis will come when all the billionaires default on their server farm loans.

In the aftermath of the usual crash, Perez tells us, governments and regulators and economists and experts get together to write new regulations so it never happens again. Not. Because governments and regulators and economists and experts don’t have a clue about the financial system. Maybe central banker Kevin Marsh will be different.

Here’s how I understand central banking. Back in 1609 the Dutch invented central banking with the Amsterdam Exchange Bank, and used the bank to win their war of independence against the Spanish. That’s what central banks are for: they print money to finance world wars.

Then the Dutch invaded Britland in 1688 and set up the Bank of England in 1692. It worked so well that the Brits won the Second Hundred Years War in 1815 at Waterloo a day or so after the Duchess of Richmond’s fabulous Ball in Brussels.

The other thing that central banks do is act as “lender of last resort” in a credit crisis. Sir Francis Baring invented the concept in 1797.

In the U.S. we won our Independence without a central bank, but Alexander Hamiliton set up the Bank of the United States to buy all the worthless debt issued by the states in the War of Independence, and lots of people made a ton of money.

But not everyone likes the idea of a central bank, and it took a university president to persuade the U.S. to do central banking again in 1913 just in time to finance two world wars and a cold war and the welfare state. On the way the Fed botched the 1929 credit crisis and almost botched the 2008 credit crisis.

I am confident that central banker Kevin Warsh will make central banking Real Simple.

Christopher Chantrill @chrischantrill blogs at The Commoner Manifesto and runs the go-to site on US government finances, usgovernmentspending.com. Also get his American Manifesto and his Road to the Middle Class.

https://www.americanthinker.com/articles/2026/02/central_banking_made_real_simple.html