Submitted by Taps Coogan on the 17th of February 2019 to The Sounding Line.
Grant’s Interest Rate Observer Founder and Editor, Jim Grant, recently spoke with CNBC’s Rick Santelli about the Fed’s recent dovish turn and the growing quantity of negative interest rate bonds in Europe.
“Well, I think the Fed is just as good as the rest of us at seeing around corners. The difference is they pretend to be able to do it. I guess that’s part of the job description. When you listen to Governor Brainard, what she said was ‘the Fed needs to guard against volatility.’ Does that mean to guard against price discovery? Does that mean to guard against bear markets? What does volatility mean in this context? So I think the trouble with the Fed and the trouble with its balance sheet, is that it was set up to do something that was not in the minds of the founders of this institution… The balance sheet is more than the sum total of this massive pile of securities. It is also an expression of the way the Fed does its business, and the way it does its business is to run a fiat with an eye on the stock market.”
“… Whether we are looking at Switzerland, Germany, Denmark, Netherlands, Belgium, Sweden, Austria. I could name 17 countries. What do they share? Negative interest rates. I see research from the San Fransisco Fed saying negative rates aren’t so bad, for the Eurozone and Mario Draghi, ‘they’re working.’ Jim Grant, what do you think about negative interest rates?”
“Well Rick, you failed to mention Bulgaria, which has outstanding a piece of Euro denominated paper that is priced to yield minus 30-odd basis points (-0.03%) at maturity next year… You pay Bulgaria for the privilege of lending to its government thanks to massive, almost $3 trillion worth of, bond market manipulation conducted by the ECB. The bond market in Europe is as dead as the Opportunity Vehicle on the martian sands. That market is stripped of its job in life, which is to discover price and rates and to help calibrate our feelings and our calculations about financial risk… Central banks have done us no favors by snuffing out the lights that guided us to sensible investment decisions.”
There is much more to the interview, so enjoy it above.
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