Central bank’s experimental policies are only hurting America instead of leading the nation into financial prosperity, exclaims James Grant, editor of Grant's Interest Rate Observer. "The Fed is a relic of the age of command and control. The Fed is an anachronism,” Grant tells Bloomberg TV in this excellent interview, "The Fed ought to get out of the business of masterminding ‘the American enterprise,’ what we call the U.S. economy." Central bankers, Grant adds, by pressing rates to nothing, have given rise to this "very pleasant kind of inflation we call bull markets." While bull markets are great insofar as they reflect what is actually going on, "they are very dangerous to the extent that they are the artificial creation of artificial interest rates."
"We are in a regime of price administration. Price control is a policy that has failed for millenia. When prices are manipulated, manhandled, and otherwsise distorted, real decisions follow and the real decisions are distorted... there's bricks, mortar, and human lives attached to these [interest rate decisions]... and that's why they matter"
"How do they know the funds rate ought to be zero?"
"The world's central bankers went to the same schools, talk the same language, have the same world view.
They have shared conditions. They believe, for example, that an average of prices, which they believe they can calculate, must rise at two percent a year unless the world fall into something they choose to call deflation.
They believe that they can see into the future. They believe that they have the knowledge and the dexterity to manipulate interest rates to the benefit of society.
The central banks no more than the rest of us can see into the future. They are managed by human beings who do their best but who cannot -- underscore -- cannot see into the future and improve it before it happens. That's their conceit. But it is not given to mankind to do such things.
They try. They have every good intention. But they are appliers of an outdated scheme of command and control. They don't know what they do."
Bloomberg TV Interview...
Some further highlights...
On the consequences...
The anger in the political process right now across both parties is evident for example, in the otherwise seemingly baffling popularity in the polls of Donald Trump. He is the -- to my mind, he is the candidate of the thwarted and frustrated people who don't know exactly what is happening, but know full well that something is wrong, that something certainly is different.
Donald Trump speaks to them in a way that I think is very destructive. But that's one consequence of the set of policies that have delivered us into this world of economic sleepwalking.
On repeating the same mistakes...
"the 2008 financial crisis didn't come from nowhere. It came, in my opinion, from the socialization of credit risk and from the manipulation of prices."
"We are under the governance of former tenured economics faculty who think they know more than they can possibly know,"
“Let us at least revert, if not to some perhaps Utopian dream of a perfect monetary standard, at least let us get out of the business of the suppression of interest rates, the administration of prices and the government sponsorship of asset bull markets."
On the stock market...
"Now, there is inflation and inflation. There is an inflation that is registered at the supermarket and the cash register. And there is inflation that is registered on the stock markets and in the real estate markets.
And the central bankers, by pressing rates to nothing, have given rise to this very pleasant kind of inflation we call bull markets. Bull markets are great insofar as they reflect what is actually going on.
They are very dangerous to the extent that they are the artificial creation of artificial interest rates."