The lovely Lauren Lyster, formerly of Capital Account and now the new host of Yahoo’s Daily Ticker, interviewed SD’s favorite Fed-basher Jim Grant regarding the Fed’s latest FOMC statement.
Grant stated that if creating credit was able to successfully reactivate business activity the world would have been richer many generations ago, that the Fed’s actions are counter-productive, that QE funds injected into the economy is money in search of mischief, and that Bernanke’s manipulation of interest rates will fail spectacular with major fireworks as the price of interest rates find their own free market valuation.
As always, Jim Grant’s interview is a MUST WATCH!!
Regarding the Fed’s attempt to stimulate business activity with quantitative easing Grant stated:
If it was as easy as creating credit to levitate an economy or to reactivate business activity the world would be richer many generations ago. GDP came in reading negative, which was rather a shock…we have more or less a 1-2% growing economy, an economy that for American terms is a low-level virus. The Fed means to re-energize this through the creation of credit. The Fed intends to buy $85 billion with a B of securities every month. You might ask where does it get that money?
Lyster responded: Where does it?
Grant: It creates it. It didn’t exist before the Fed materialized it through the very humble action of a keyboard and a computer. Notice that this money is coming into the system without any commensurate increase in production. This is money in search of mischief, and it is likely to find it.
The Fed’s actions are counter-productive. The GDP print coming in negative is perhaps an anomaly, perhaps due to a non-recurring draw down in defense spending, but the important thing about the economy is that it is not a characteristic American economy. It is missing the dynamism, and the entrepreneurial zest that has characterized this country.
Lyster asked Grant whether the Fed may take any credit for the recovery of the housing market. Grant replied:
No, they may not. America is like Major League Baseball. Try as they (the Fed) might to wreck it, they can’t seem to do it. There is an irrepressible will to grow in this country.
Regarding when interest rates might rise Grant replied:
The Fed is in my mind suppressing interest rates. Interest rates are a very important price. Ben S. Bernanke has come out himself against price controls, and yet he persists in controlling this one important price. Price control ultimately fails, and when it fails, the failure is replete with all manner of drama and fireworks as prices find their own levels.
Grant’s full interview is available at the link below: