Submitted by Taps Coogan on the 15th of March 2019 to The Sounding Line.
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Grant’s Interest Rate Observer founder and editor, Jim Grant, recently spoke with CNBC’s Rick Santelli about academics’ and central banks’ obsession with ‘escaping’ low inflation.
“What I see… is a lot of very very way-out ideas entering the mainstream. I picked up a copy of the Financial Times yesterday and was struck by… a reference to a Martin Wolf column… and the copy read ‘New ideas needed to escape low inflation.’ I thought, escape low inflation (chuckling)…”
“One of the clear and present risks in today’s markets is the intellectuals, is the ignorance that knows not that it is ignorant… One of the things that Martin Wolf said in his column is that, perversely, one things that central bank intervention has brought us is a great deal of debt which has weighed down on the price level, which paradoxically has induced not the inflation that central bankers hoped for, but rather a persistent drag that is akin to a kind of a low level virus… So he says ‘Okay, we can’t do that anymore, but what we must do is spend heavily. We need bigger deficits, more spending…’ (apparently not realizing that that would lead to yet more debt). This reminds me of something that was hot rather before my birth which was the phrase ‘secular stagnation.’ That’s coming back into it’s own too. This was the formulation of a Harvard professor… called Alvin Hansen… and Alven Hansen said in 1938 that we were in for a long bout of droopiness because immigration was down and the frontier had closed… What he didn’t see is World War II, the Baby Boom, and the greatest expansion of economic activity in the annals of America.”
Years of negative interest rates and trillions of dollars in debt and quantitative easing in Japan, the Eurozone, and other countries have failed to revive inflation, to say nothing of robust economic growth. Meanwhile, the only ‘new ideas’ that never seem to be on the table, particularly in Europe, are actual pro-growth structural economic reforms.
There is more to the interview, so enjoy it above
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