The Fed Is Duty-Bound to QE (Video)

Peter Schiff is one of the only voices warning that the Federal Reserve is going to start a new round of quantitative easing instead of raising rates. You can add well-known investor and analyst Jim Grant to the list of contrarian economists. Yesterday, Grant told CNBC that the Federal Reserve will revert to its worn-out policy of quantitative easing instead of a rate hike.

Grant went on to paint a sobering picture of the American economy. He argues that the Fed’s policy of heavy-handed intervention has, unfortunately, entered the bloodstream of mainline politics. Washington might try to manipulate the economy by decree, but at the end of the day, it can’t change the economic reality that free exchange doesn’t depend on government oversight.

Highlights from Grant’s interview:

“I think that the surprise might be that the Fed reverts to its now very familiar stance of ease in the face of all of us saying that, on the contrary, it’s going to remove patience…

“Interest rates are prices. They’re perhaps the most critical prices in finance. Central banks the world over have been suppressing them, manipulating them, and otherwise manhandling them. We should call this what it is, which is price control. Insofar as price control is never successful and never has been, this experiment, this demonstration, will end in failure…

“I don’t think that the Fed is going to do it right for this reason: I think that on the one hand, the Fed is suppressing and controlling this price recall interest rates. On the other hand, the Fed, and I use this word carefully, has virtually nationalized large-scale banking in this country through the most Draconian and heavy-handed regulation under the leadership of Daniel Tarullo. The Fed is trying to institute safety through governmental fiat as it manipulates interest rates through governmental fiat. What is missing is the free play of market forces and the market dynamics of individual decision making…. The odds are heavily against [the Fed helping the economy] because of the asphyxiating governmental presence in our finances…

“We will always see another recession and another bear market. My point is that come that time, the Fed will be duty-bound, because it now is on record as saying this stuff works, they’ll be duty-bound to re-enter the market just as forcefully as it has done since 2007. I say that the virus of radical monetary policy is in the political bloodstream, meaning that we can’t go back now. They’re bound to come in and do more. What will more mean? More managerial control of our banks? Yes. More QE, more intervention to raise up asset prices in the interests of aggregate demand, as they call it. What about this thing called free markets? We ought to have them…. It’s an argument at the very least for the reinstitution of free prices in finance. The Fed can change how things look, but they can’t change what things are.”

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