Jim Grant: The Fed Is in the Business of Making Things Worse (Video)

Jim Grant appeared on CNBC’s Closing Bell to discuss the Fed’s latest non-move in interest rates, noting that “it seems awful familiar.”

Grant offered a stinging indictment of the Fed’s role in the world, pointing out that central planners simply can’t juggle all of the varying factors in the economy. Every move the Federal Reserve makes to “fix” a problem brings about another set of unintended consequences.

The Fed is in the business of making things worse as it seeks to make things better.”

Grant went on to discuss the notion that sovereign debt is some kind of “risk free” investment. “Of course it has risk,” he exclaimed, noting that in 2005, mortgage debt was the favored asset of the cycle.

The asset of the cycle now is sovereign debt yielding just about nothing.”

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Highlights from the interview:

“The Fed is in a position of a central planning body that must take all things into consideration. It must levitate prices such as to give us 2% inflation. It must create prosperity through the improbable agency of money printing. It must assure financial stability. These are hard things to do; otherwise they would have been done many centuries earlier.”

“I think what the Fed never gets around to saying is that finance is symmetrical. There is an asset line and a liability. There’s a supply and demand. So they want to magnify or enlarge aggregate demand, right? But inadvertently, through these 0% rates, and through more and more quantitative easing, they also enlarge aggregate supply. Witness the bear market in energy. So, a lot of oil wells get drilled – a lot of fracking – thanks in good part to a lot of junk bonds issued by exploration and development companies. So, the Fed is in the business of making things worse as it seeks to make things better.”

“My view is that radical monetary policy is pretty much here to stay.”

“For example, 0% rates have allegedly been part of the solution for our woes in Europe and here, except 0% rates mean you must have a great many more assets in order to generate income.” “They’re pushing back failure. We must have failure in capitalism in order to allow new things to come and develop. So, the minimization of failure is paradoxically a problem with the ruling monetary regime.”

“As a proposition of risk and reward, you are being paid about nothing, after tax. You are being paid less than nothing in many cases to by the emissions of improvident sovereigns. I mean, it doesn’t really sound like a good idea, right? The reason it sounds like a workable idea is interest rates have been going down for 30 years, and in Europe there is a regulatory regime that positively favors sovereign debt. It treats it as something without risk. Well, of course it has risk.”

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