Marvin Barth is a PhD economist with a three-decade career in academia, central banking, and on Wall Street. He has held senior roles at the Federal Reserve Board, the U.S. Treasury Department, the Bank for International Settlements, and major global asset managers. And much more.
Marvin is the founder of Thematic Markets a consultancy providing strategic insights into global political economy and markets; he also is the author of his Seriously., Marvin?! Substack. And it is in this capacity that he joins me at the Hoover Institution’s annual monetary policy conference at Stanford University, where the theme is “Independence, Structure, and Risks Ahead for Central Banks.” Marvin is on the eve of presenting a paper on the panel, “Risks, Challenges, and Opportunities.”
Marvin starts by referencing a term Warsh has used in the past regarding what central bankers must have: “epistemic humility.” What is this? “The central bank needs to have some humility about its job and its ability to forecast what’s going on.” He warns that the Fed has become “far too model oriented,” adding that “all models are “ wrong, but some are useful.” This humility, he argues, is essential for robust internal debate and for adapting to real-world economic signals.
He pulls no puches when he assesses Fed chair Jay Powell’s record. “Jerome Powell will go down in history as one of the worst Fed chairs” He contends that Powell’s record is objectively poor, citing inflation statistics: “He has the seventh worst overall and he has the fourth worst in the floating exchange rate era since we abandoned the gold standard.”
Marvin supports central bank independence, “The central bank also needs to be accountable. And that’s where I hold, you know, Chairman Poweltl is in contempt…” He argues that personalizing praise for Powell distracts from the need to protect the institution and its integrity.
He highlights a persistent problem: the Fed’s misunderstanding of potential growth. “Even the most bullish member, the most optimistic member of the FOMC has undershot average GDP growth over the last 12 years.” This, he suggests, reveals a fundamental flaw in the Fed’s modeling and its assumptions about economic trends.
Barth challenges consensus views on quantitative easing (QE) and tightening, arguing their market effects are overstated. “I don’t think quantitative tightening... has as big a market effects as people think. I’ve done a variety of research showing that a lot of the studies... are actually wrongly constructed.” He believes that slimming down the Fed’s balance sheet will ultimately benefit equity markets, contrary to popular belief.
So dive in and hear why Marvin is optimistic about Fed Chair Kevin Warsh, hoping that he will bring the desired epistemic humility to his role as Fed Chair, and address inflation decisively.
Spoiler alert: he will be watching closely to see what tone Warsh sets when he first takes command of the Fed. “Is he going to address the fact that inflation is accelerating... Is he actually going to address inflation immediately?”
Hope that Warsh does what he has said he would do 00:01:37:03
So my biggest hope is that he does what he said his whole career. So if you look at, the span of his career, the things that he said, I’m very hopeful about that. So his, point about, epistemic humility, this idea that the central bank needs to have some humility about its job and its ability to forecast what’s going on. So, it needs to continuously question itself and have a robust debate. Inside, I think that’s really critical. We have, across central banks, but I think particularly the Fed, become far too model-oriented. And that’s fine. Models are great. We need them. But you have to remember as, you know… all models are wrong, but some are useful.
Models have a time and a place...but always context 00:02:39:05
So, you know, they’re a useful way for you to parameterize what’s going on with the economy. But you have to always be humble enough to know that you haven’t actually revealed the truth with your model. And so you have to be looking at all sorts of other signals. And I think a lot of central bankers today, but especially at the Fed of sort of lost their ability to do that.
Sock puppet socks back-- 00:03:00:23
So I really like that. And I hope that he’s, going to follow through on that. The other thing is, remember, this is a guy - and it’s really interesting when people talk about central bank independence and, you know, Senator Warren calling him a sock puppet, I mean, this is a guy who literally resigned from the Federal Reserve because he disagreed with the policy.
Warsh foresaw the backlash to Fed excesses 00:03:24:11
And, you know, not only that…<he> walks out the door. Does a mic drop Op -Ed in the Wall Street Journal like the day he leaves criticizing his colleagues for doing this? So he’s been very consistent on the overreach of the Fed, which I think is another critical problem. And if you go back and look at the minutes from his last meetings, he was exactly right in highlighting this was going to lead to independence problems for them, that they were going to rile up populist angst and there would be an attack against the Fed. He was fully right on all of that. So those are the things I’m hopeful about.
Jerome Powell: not a good Fed chair 00:04:05:16
What I’m perhaps concerned about is if I look around, I think, you know, and I’ve written this, and I’ll say some of comments, at the conference tomorrow, that Jerome Powell will go down in history as one of the worst Fed chairs. Really?
Accolades to Powell are a mistake 00:04:49:04
Yeah. And I think that’s a mistake. I think people are making a huge mistake personalizing this rather than defending the institution. Let’s defend the institution. Yes, we should all be defending central bank independence. That said, the central bank also needs to be accountable. And that’s where His record objectively, is one of the worst in Fed history.mjj
Powell- a bad inflation record 00:05:17:07
You know, if we look at the, history of Federal Reserve chairs, average inflation over their tenure. You know, he has the seventh worst overall and he has the fourth worst in the floating exchange rate era since the since we abandoned the gold standard, which is an important difference. But, one of those, is Paul Volcker who inherited high inflation and brought it down.
Powell inherited inflation low, bequeathed high 00:05:46:10
Jay Powell did the exact opposite. He inherited some 2% inflation. And he’s handing off to Kevin Warsh, accelerating 4.4% core PC price inflation before this war even started. So I don’t think there’s any way you can defend his record. And that’s been something that led to a lot of populist anger, which has led to this attack.
Context: Other Fed Chairs 00:06:59:10
Well, let’s look back at other people, you know. Yes. Paul Volcker, had, the support of, the president. But remember, he had a lot of pressure. There was actually a farmer who had a tractor who drove around the Eccles building every day protesting there, raising interest rates. You know, there was a lot of populist angst against that.
The blame game 00:07:25:17
He also had to deal, with, the, reform of the banking system in 1981 and, credit controls. And, you know, he had to deal with all of that. You go back and look at other Federal Reserve chairs, you know, one of the things that this committee has done, they continuously refer back to Covid, which was five years ago, again, five years ago, but inflation is now more than double their target and accelerating.
Judge the Fed by how it handles difficult times 00:07:59:03
Think about what someone like William Harding had to go through. William Harding had World War one. He had the Russian Revolution, which, created the largest oil supply and grain supply disruptions in history. And he had the world’s largest steel worker strike when the U.S. was responsible for 80% of world steel production. And he had the Spanish influenza, which was a big thing.
Out of Pandora’s box 00:08:28:12
So he had to deal with all of those things. And yet you know, this FOMC says, oh, gosh, you know, we’ve had it tough. Five years later now they let inflation expectations get out of control.
Fed is too focused on models 00:09:02:22
Oh, look, I think they’re too focused on on models and that those models have the answer for them. So, you know, one of the things that I’m going to highlight in my talk…
Fed’s assessment of growth has been too low- 00:09:23:13
Take a look at the FOMC. Projections for what they think is trend GDP growth, their long run growth assumption, and they give the whole range of the committee. And if you look at that, even the most bullish member, the most optimistic member of the FOMC has undershot average GDP growth over the last 12 years. So GDP has been growing faster for 12 years than the most optimistic member of the FOMC thinks is potential. Clearly they have some sort of problem understanding what potential growth is if it’s lasted that long. And oh by the way, most of that time will interest rates have been well above what they also say is the neutral real interest rate.
Appears to be some persistent bad judgement as well 00:10:20:07
So again, they keep talking about restrictive. And it’s almost like a scene from The Princess Bride where, you know, he’s saying inconceivable, right. And his henchman says, I don’t think that word means what you think it means. This is the way I look at the FOMC all the time. I look at this, like restrictive. I don’t think that word means what you think it means because the economy is roaring, inflation is out of control. And you guys keep saying rates are restrictive. Where’s the restrictive part?
Highly Critical of Current Central Bankers 00:11:25:00
No. So the thing that’s positive is that I do think he at least brings the right attitude towards that dominant model building framework there. You know, hey, let’s look out the window and see what the economy’s really doing. What concerns me is, and this is where we got started with it with Chairman Powell, let’s see, Chairman Powell, I’ve just said I think is one of the worst chairmen in fed history. I don’t think, President Lagarde of the ECB has done a particularly good job. What’s the common theme here? They’re all lawyers. Oh. So I’m not sure we need another lawyer. So I’m a little bit concerned about that, especially when he’s walking in saying some things that don’t make a lot of sense.
The productivity argument does not get you where you want to go 00:12:10:13
His whole thing about how actually the neutral, real interest rate should perhaps be even lower because there’s a big productivity boom. Now. And you’ve seen my research at thematic markets. I’ve been highlighting that there is a productivity boom going on. It is taking off, and it’s far broader than I. And yet that actually has the opposite effect on neutral interest rates.
High Productivity causes rates to be higher not lower 00:12:36:07
It raises neutral interest rates. It doesn’t cut them. Yes, it will potentially bring down inflation in the long distant future. But right now it’s raising demand for capital because you want to invest in all that productive activity. So you need a higher neutral interest rate. And so that’s one of the things that really concerns me. So I hope that is epistemic humility will make him come in and say, oh well gosh, inflation is on fire.
Was Warsh was more hawkish under Democrats? Not really 00:14:02:19
And, you know, maybe that was part of his, answers around, you know, productivity and lower interest rates. Maybe that’s what he needed to get across the job. I guess I’m less concerned about those two things for a couple of reasons. One, you know, there was this famous economist chart when he was nominated showing that, you know, they had done natural language processing of his, rhetoric and whether it was hawkish or dovish, and they overlaid it with who was president. And, you know, he’s hawkish when the, Democrats are president, but he’s dovish when a Republican is president as Greenspan. Well you know people have have said that about Greenspan.
But what I think is more fundamental is, yeah, that’s a great way. If you just present the data that way, it just happens to line up that way. If you happen to plot GDP growth along their exact graph of his hawkishness and division is that seems to do a much better job of explaining it, i.e. when the economy is weak.
Proper policy shifts/ will focus on his own legacy 00:15:24:22
<When the economy is weak > He’s he sounds dovish. Surprise, surprise, as you should. And when the economy is strong he he sounds hawkish. The worst was actually Paul Krugman did a similar graph. And if you look at it this is horrible. He actually cut out two years when Kevin Warsh was hawkish during the Trump first Trump presidency to make his graph look better. I mean, a lot of this stuff is just politics coming from the other side. So I don’t think he’s that political. The other thing is, you know, I’m a strong believer that people act in their own self-interest, that I’m an economist. That’s what I believe. We have a guy who is young, who is wealthy, who is, well respected on his own. He doesn’t need anything from Donald Trump. And in fact, now he’s going to be put in one of the most powerful positions in the world. That man is going to be concerned with his own legacy, and he’s not going to want to go down in history as having someone like me say he was one of the worst, bad chairs in history. So I’m not actually that concerned about his motivations or incentives. I’m more concerned about whether he’s going to know to do the right things.
A good choice for independence 00:17:13:17
Well, I think this is one of the things, and this is one of the reasons why I was highlighting, you know, early last year that he would be the likely pick. I thought that it was almost certain that it was going to be either him or that Scott Bessent himself as the head of the search committee, would decide to switch over to, the Fed from Treasury.
Trump the distrustful populist 00:17:35:16
And the reason was because both of them were, you know, very credible on cutting down the balance sheet, which I think is a really big populist initiative. If you look, you know, whether people want to admit it or not, President Trump represents a, strain of populism in America, Jacksonian populism that is very mistrustful of centralized finance and of government interference in in finance. And they don’t like a big central bank. They want the central bank to be smaller. And if you look, you know, since day one, Secretary Bassett has been talking about the Fed’s balance sheet, what do you call it, a gain of function that in that Op-ed, it needs to be, cut down. As I mentioned before, you know, Kevin Warsh, he left the Fed previously because of their balanced balance sheet.
Fed will need to de-regulate to cut down the balance sheet 00:18:35:20
Right. So they’re very credible on this issue. Now, the reason why a lot of people say you can’t cut down the balance sheet is because every time that they try, they run into these problems in, in treasury markets with liquidity. But that all comes back to Basel three regulations post global financial crisis regulations. We didn’t have these problems before. Basel three. Right. And one of the reasons why I think the Trump administration has been so focused on taking over the Federal Reserve is that the Federal Reserve, under the Dodd-Frank legislation, actually has immense latitude to completely unwind Basel three. And so this makes both strains of the Republican Party happy. You’ve got the pro-business strain that wants deregulation. Well, yeah, let’s get rid of a lot of this bank regulation. And then you’ve got the dislike, government involvement in finance who want a smaller Fed. Well, the way to get to a smaller Fed is to get rid of those regulations that create so much demand for treasuries within the Federal Reserve System and within the banking system.
Rates are too low; below neutral 00:20:30:19
I think they’re well below neutral (interest rates) right now and they need to act. Right. Now, I have a very, non-consensus, view on quantitative easing and quantitative tightening. For me, I don’t think quantitative easing/tightening, not just its economic effects but actually its markets effects…<work>.
QE/QT do not pack as much punch as people think - 00:20:56:05
I don’t think it (QE) has as big a market effects as people think. I think quantitative tightening the same, same thing. I’ve done a variety of research showing that a lot of the studies that, purport to show these big effects are actually wrongly constructed. And when you construct them correctly, and differentiate true quantitative easing and quantitative tightening from lender of last resort functions, i.e. lending when they’re to when nobody else will, which is a very different thing from QE.
Fed Ozempic coming 00:21:30:01
That in fact there isn’t much effect there. That said, markets can expect this. So I think the reaction is going to be when. And I do expect that at some point early in his tenure. Kevin Warsh is going to lay out his plans for slimming down the balance sheet. He’ll probably talk about doing gradually, but people are going to say, oh my gosh, this is going to have a big effect on duration, and you will have a short term effect on, longer term rates and steepening.
Market impact is misunderstood 00:22:00:05
But I think, that’s going to be much less pronounced than people expect. It won’t be long lasting. The other critical point is I think it has the opposite effect on, equities than what people think. The portfolio balance channel gets it exactly backwards. When you take away the negatively correlated asset from markets, it actually makes equities, less attractive and raises the equity risk premium.
Where will Warsh put his first focus? On Inflation. 00:22:58:15
How does Kevin Warsh set the tone when he first comes in? Is he going to address the fact that inflation is accelerating, that he was handed effectively a poisoned chalice, both by the central bank itself and then by this war coming in? Is he actually going to address inflation immediately? I suspect that he will based on his history. But that’s the critical thing to watch. And then, of course, what I just said about how does he lay out this plan for how they’re going to slim down the balance sheet?
Marvin’s Bio
The official version
The strategic insights I am known for are the product of an unusually serendipitous path through life. I am an irrepressibly curious intellectual who has been blessed with rare, diverse experiences in life, education, policymaking, markets, and business. The result is an alternative perspective that allows me to see things that others miss. My love of international political economy and financial markets derives from my enjoyment in making sense of them. They form a giant, multidimensional, shape-shifting jigsaw puzzle to be solved anew each day. Unraveling its mystery is why I started Thematic Markets.
Many of my insights come from a uniquely rich professional career that gives me deep understanding of the three key players in the puzzle: politicians, policymakers and market participants. What they comprehend and misread about each other, what their respective incentives and risk tolerances are, and how those create feedback loops between them. Fortune afforded me many unusual, sometimes stressful, sometimes humorous, but always educational experiences, including:
Senior roles in central banking, finance ministry and international policy.
Entrepreneur, employee and manager in small private partnerships, massive global financial institutions, and sprawling government bureaucracies.
Playing an April Fool’s joke on and writing speeches for the Chairman of the Federal Reserve.
Briefing the Secretary of the Treasury on the Global Financial Crisis, both of us completely nude in the basement locker room of the Treasury building.
Ad hoc daily lessons in post-Bretton Woods economic history and policymaking from the Federal Reserve’s “Barons” (the Directors of the three Research Divisions), following morning economy and market briefings.
Regularly standing in the line of fire as briefer to the Governors of the Federal Reserve at their weekly meetings on global markets and economic developments.
Working with central bankers from around the world addressing common policy issues at the Bank for International Settlements.
Building and leading an interagency risk assessment program for the US government involving the Treasury, Energy and State Departments, the Federal Reserve, the CIA, the National Economic Council, the Council of Economic Advisors, and the National Security Council.
Launching a G7 initiative to foster the development of local debt issuance in emerging markets.
Participating in G7 crisis response and currency intervention calls and crafting the communiqués that followed.
Direct experience in nearly every asset class (public, private, equity, rates, credit, commodities, currencies, real assets, developed and emerging) throughout the financial industry (sell side, buy side, end pools of capital) and in a range of roles from strategist to portfolio manager.
But who is Marvin Barth?
Doctorate, senior roles at the US Treasury, Federal Reserve, Bank for International Settlements, large market makers, storied asset managers, and small private partnerships all make for a notable curriculum vitae, but they don’t tell you who I am or why my perspective is so consistently different from other market analysts.
Early success with my longest friend, Dan
I grew up in an agricultural town in California, the fifth child of a school teacher and a father who has an intimidatingly silly list of letters following his name (BS, MS, PhD, JD, CPA, and MBA) and describes himself as an “ex hired killer and bomb maker” based on his military service and career at a national weapons laboratory. Our circumstances ranged from modest – particularly when Dad was earning all those letters – to middle class. Pocket money and even my education needed to be personally earned, so I worked a range of odd-jobs throughout my youth: newspaper boy, ditch digger, store clerk, cannery worker, busboy, waiter, bouncer, barback, bartender, personal fitness trainer, sorority-house “hasher”, commercial salmon fisherman, assistant theater manager, and teaching assistant. One of my colleagues called this my “Jack London” phase, during which I was a member of the Teamsters Union, participated in strikes, and spent my summers in an abandoned cannery without running water or electricity amid wandering Alaskan brown bears.
My home, summers 1989-91 (Photo: Corey Arnold)
I stumbled into Economics at UC Berkeley – “Cal” – by chance. Unable to choose from the Michelin-starred menu of majors and not wanting to graduate with a “liberal arts” degree, I noticed that I could complete the Economics major with just four classes while pursuing my varied interests. I took more classes in History than Economics (almost enough to double major), while also taking courses in Accounting, African-American Studies, Anthropology, Computer Science, Film, Law, Physics, and Political Science; competing in intercollegiate athletics (rowing); and sustaining my odd-jobs career, including serving meals in a sorority. The net result of my lack of focus – and admittedly, copious fun – was that I graduated with mediocre grades and no “real” job upon graduation in the original US “jobless recovery” of 1992. (I did, however, complete a senior thesis warning two decades too early that nationalization of the US housing market might lead to unusually high correlation of regional housing markets with potential risks to systemic stability.)
Serendipity continued my path to a Ph.D. at what was then arguably the most quantitatively rigorous program in Economics: UCSD. Bored and aimless in my odd-jobs career, I decided I should return to school. But in what? A process of elimination – History had no real job prospects and Biotechnology was too much of a stretch – led me to Economics: it was employable, accommodated my broad interests, and I was (ostensibly) prepared for it by my bachelor’s degree. Unfortunately, I neglected one subject crucial to advanced studies in Economics during my exploratory undergrad years: Mathematics. Returning to Cal on a non-matriculated basis, I effectively completed a BA in Pure Mathematics while applying to Econ Ph.D. programs.
Seven Sisters, Baja California, 1997
At the time, UCSD had the greatest collection of time series Econometricians ever assembled, including its gods Engle, Granger and White, and mere demigods like Hamilton and Elliott. It also was blessed with one of the greatest natural backdrops of any university: set on the bluffs of La Jolla, above one of the world’s top surf spots, near endless running trails and cycling along the Pacific Coast Highway, it was paradise. I credit my daily surfing, cycling, running, and swimming with keeping me sane enough to complete my dissertation in four years while simultaneously working two jobs (as a teaching assistant and part-time “quant” consultant). Given the opportunity presented by the faculty, I felt that I had to do an advanced field in Econometrics (completing a second in Finance), but I ultimately wrote my dissertation in Monetary Economics under the tutelage of my mentor Valerie Ramey, one of Macroeconomic’s more unconventional thinkers.
A curious thing about going that deep into quantitative methods: you either succumb to its allure as supernatural omniscience, or peer behind the curtain to see the wizard’s tricks and limitations. My path was the latter with important implications for my research: I recognize that not all problems can be suitably quantified or measured, even in our hyper-digitized world of “big data”, and that you often must rely instead on theory and logic. It also has bred in me a deep skepticism for those who took the other path of zealous overconfidence in the received “truth” of their econometric models.
Despite my poor job luck coming out of university, I have been blessed with extraordinary “real” job opportunities and fabulous mentors since. During my doctoral studies, Hal White, a man whose kindness and humor belied one of history’s most brilliant econometricians, recruited me to build valuation and risk models with him at a boutique emerging markets equity manager. Upon completing my Ph.D., I was thrust into the hotseat as the Southeast Asia economist at the Federal Reserve Board in Washington during the Asian Crisis of 1997-’99. Addicted to policy adrenaline, as soon as Asia recovered, I switched to the Fed’s Financial Markets section where there always was excitement and the opportunity to engage directly with the Chair, Governors and senior Fed staff. For my efforts, I was seconded to the Bank for International Settlements in Basel, Switzerland, giving me a view into international policy institutions and the operations and frameworks of other major central banks.
Secretary Snow awarding my commission
Upon returning to the Fed I sensed a flattening of my learning curve, so when a former Fed mentor asked me to join him at Citigroup in London to do currency strategy, I leapt at the chance. I quickly garnered a reputation within Citi as someone who could engage with the most challenging and senior clients at any hedge fund, asset manager or sovereign wealth fund, largely because I reveled in the opportunity to engage the most brilliant and experienced minds in finance in my unending quest to solve the global markets puzzle.
Fortune again intervened. A friend, stepping down as a Member of the President’s Council of Economic Advisors suggested that I should apply for her seat. That was not to be as Ben Bernanke, the incoming Chair, wanted a trade economist. But unbeknown to me, it put my name on a list that ultimately led the new Under Secretary for International Affairs at the US Treasury Department to ask me to be his Chief Economist. How could I resist the opportunity to be the primary economic advisor to the person charged with making US international financial and economic policy, including dollar policy? I came in as a political appointee, meaning my term ended with the Bush Administration, just as the Global Financial Crisis was peaking. Citi had reached out to me about leading cross-asset strategy, but quickly found itself in a hiring freeze. Lehman Brothers offered me a job leading macro strategy that I had the foresight of turning down.
Instead I chose what looked like a safe port in the storm: a distressed debt fund with 10-year closed-end (i.e. secure) funds. But it brought a different, idiosyncratic risk: bringing a macro overlay to a bottom-up private investment fund. Ultimately, the difference in style was too great, but two of the senior partners of the fund and my oldest brother backed me in starting a macro hedge fund that gave me a valuable but (financially) painful lesson: being right and making money are not the same thing. Despite having largely correct macro views, I mismanaged my leverage amid volatility, made classic rookie trading errors, and ultimately had to close shop a year later.
Including my secondment to the BIS and my failed fund, I had had six high-stress roles in less than a dozen years and decided to downshift to what I hoped would be a more relaxed job as asset allocation strategist at an end pool of capital, a so-called “outsourced chief investment officer.” Effectively a fund of funds for endowments, the fund was backed by the storied pension manager of educational institutions, TIAA-CREF. While I learned a tremendous amount about management of permanent capital and integration of real and private assets into a broader portfolio, I left after just a year. The fund lacked leadership and was unable to differentiate itself within a competitive space, failing to raise money to sustain itself. I also felt too distant from markets and missed a faster-paced work environment.
Representing Barclays
Admitting my error, I returned to the sell-side, leading Barclays’ currency and emerging market research. For me it represented a chance to re-engage with the best and brightest managers in the industry from within a research organization that valued my thematic, fundamental approach.
After eight years – my longest stint yet – my entrepreneurial urge kicked in and I left Barclays to join long-time friends forming a new business funding next generation technologies in defense, aerospace, urban security, and smart cities. But I haven’t lost my interest in the global political economy and markets or in solving their collective puzzle. Thematic Markets is my excuse both to remain engaged and stay connected with the best minds in the game, my former clients, many of whom now are close friends.
I hope that, through Thematic Markets, I can share with you my experience and perspectives to help you make better decisions in markets, business and perhaps life.
Fruits of a lifelong passion, winning Gold at British Masters 2024
