Jim Grant: The Danger Lurking In The Fed’s Monetary Policy

Authored by James Grant, op-ed via MarketWatch.com,

Last Monday, the Federal Reserve embarked on a yearlong listening tour to discover the concerns of the American people. The whole shebang of modern monetary methods – manipulated interest rates, levitated asset values, the supposed necessity of a 2% inflation rate – is on the table for constructive criticism.

William McChesney Martin, top left, the Fed’s boss in the ‘Fifties and ‘Sixties, probably wouldn’t have liked the policies of the central bank’s current chairman, Jerome Powell, bottom right.

But you know how it is with constructive criticism. The friend who asks to hear it really doesn’t want any. So it is with Richard H. Clarida, the Columbia University economist turned vice chairman of the Federal Reserve Board.

In a Feb. 22 speech, Clarida invited the public’s comments as the central bank undertakes a top-to-bottom reappraisal of the way it does business. Then he said this: “The fact that the system is conducting this review does not suggest that we are dissatisfied with the existing policy framework.” A comprehensive description of that framework duly followed. So admirably clear was his message that it might have curled your hair.

It might, indeed, except for 10 years’ familiarity with once-heretical ideas. “Quantitative easing” seemed wild-eyed enough at the time it was hatched in 2008. Who objects now?

Clarida acknowledged no doubts. He said that radical monetary policy has worked, that it will continue to work, and that it may well become more radical. He contended that low interest rates are here to stay and that new policy “tools” must be sharpened and kept at the ready. As to potential adverse consequences of administered rates and the mind-control games meant to “anchor” our collective expectations of the future, he mentioned none.

The Mike Pence of the Fed, Clarida was pushing no novel agenda of his own. His interest-rate worldview is the institutional one. It springs from the contention that the natural level of rates since the financial crisis has naturally and irresistibly fallen.

Certainly, rates are astoundingly low – Bank of America Merrill Lynch recently was able to count $11 trillion of bonds worldwide quoted at yields of less than zero. Clarida said that the decline in the so-called neutral rate of interest “is widely expected to persist for years.”

Just who has made bold to forecast the course of this conceptual rate of interest (you can’t see it and you can’t trade it), Clarida didn’t say. But he did warn of the consequences of its collision with the so-called zero bound.

At zero percent, he said, the Fed would be hard-pressed to ensure that the inflation rate stays put in the neighborhood of 2%. That you can’t have no inflation, the vice chairman takes as a revealed truth.

Creditors, and any who lived through the Great Inflation of the late 1960s through the early 1980s, might disagree. They might prefer an inflation rate of nil.

William McChesney Martin, the longest-serving Fed chairman, said in August 1955, “We can never recapture the purchasing power of the dollar that has been lost.” Martin, who, in the Great Depression, witnessed an actual, virulent deflation, was nonetheless adamant that defending the integrity of the currency was job No. 1.

Whether the policies of the current Fed, led by Jerome Powell, are well or poorly advised is, to a degree, a matter of opinion. But the value proposition confronting today’s bondholders is a question of fact. At a 2% rate of inflation, the real, after-tax return on a 2.68%-yielding 10-year Treasury note is hardly enough for the tip jar.

Nor are the monetary-policy options now under discussion calculated to improve the lender’s odds. Batting around big ideas, the policy makers are weighing the advisability of seeking to deliver a 2%-plus rate of inflation over the course of the business cycle. Shortfalls from the target in recession would be neutralized by overshoots during the subsequent expansion. “Persistent inflation shortfalls carry the risk that longer-term inflation expectations become poorly anchored or become anchored below the stated inflation goal,” Clarida tried to explain.

Yet the term “persistent inflation shortfalls” from that 2% target exactly describes the postcrisis record of Fed policy making. Still not doubting their ability to control events, the mandarins keep searching for a bigger bag of tricks.

Clarida broached the idea of establishing a “temporary ceiling for Treasury yields at longer maturities by standing ready to purchase them at a preannounced floor price.” It was, in fact, how the Fed operated during World War II. Listening to the economist talk about emergency measures, it’s easy to forget that the nation is no longer fighting a two-ocean war.

This column would opine that artificially low interest rates never fail to store up troublefacilitating leverage, they promote not growth, but larger balance sheets. It would opine, further, that the central bank is playing with fire by actively seeking to depreciate the dollar, a currency that, whatever its current lofty status in the world, is a piece of paper of no defined value. And it is our opinion that the Federal Reserve should at least consider the appealing course of letting the market alone.

As for the absence of anything resembling a margin of safety in vast portions of today’s fixed-income markets, it’s no opinion, but a most worrisome fact.

 

 

Jim Grant: The Danger Lurking In The Fed’s Monetary Policy <body> <h1> Array ( [0] => him grant: the danger lurking in the fed&#8217;s monetary policy [1] => nim grant: the danger lurking in the fed&#8217;s monetary policy [2] => mim grant: the danger lurking in the fed&#8217;s monetary policy [3] => kim grant: the danger lurking in the fed&#8217;s monetary policy [4] => iim grant: the danger lurking in the fed&#8217;s monetary policy [5] => uim grant: the danger lurking in the fed&#8217;s monetary policy [6] => jum grant: the danger lurking in the fed&#8217;s monetary policy [7] => jjm grant: the danger lurking in the fed&#8217;s monetary policy [8] => jkm grant: the danger lurking in the fed&#8217;s monetary policy [9] => jom grant: the danger lurking in the fed&#8217;s monetary policy [10] => j9m grant: the danger lurking in the fed&#8217;s monetary policy [11] => j8m grant: the danger lurking in the fed&#8217;s monetary policy [12] => jin grant: the danger lurking in the fed&#8217;s monetary policy [13] => jik grant: the danger lurking in the fed&#8217;s monetary policy [14] => jij grant: the danger lurking in the fed&#8217;s monetary policy [15] => jim frant: the danger lurking in the fed&#8217;s monetary policy [16] => jim vrant: the danger lurking in the fed&#8217;s monetary policy [17] => jim brant: the danger lurking in the fed&#8217;s monetary policy [18] => jim hrant: the danger lurking in the fed&#8217;s monetary policy [19] => jim yrant: the danger lurking in the fed&#8217;s monetary policy [20] => jim trant: the danger lurking in the fed&#8217;s monetary policy [21] => jim geant: the danger lurking in the fed&#8217;s monetary policy [22] => jim gdant: the danger lurking in the fed&#8217;s monetary policy [23] => jim gfant: the danger lurking in the fed&#8217;s monetary policy [24] => jim gtant: the danger lurking in the fed&#8217;s monetary policy [25] => jim g5ant: the danger lurking in the fed&#8217;s monetary policy [26] => jim g4ant: the danger lurking in the fed&#8217;s monetary policy [27] => jim grznt: the danger lurking in the fed&#8217;s monetary policy [28] => jim grsnt: the danger lurking in the fed&#8217;s monetary policy [29] => jim grwnt: the danger lurking in the fed&#8217;s monetary policy [30] => jim grqnt: the danger lurking in the fed&#8217;s monetary policy [31] => jim grabt: the danger lurking in the fed&#8217;s monetary policy [32] => jim gramt: the danger lurking in the fed&#8217;s monetary policy [33] => jim grajt: the danger lurking in the fed&#8217;s monetary policy [34] => jim graht: the danger lurking in the fed&#8217;s monetary policy [35] => jim granr: the danger lurking in the fed&#8217;s monetary policy [36] => jim granf: the danger lurking in the fed&#8217;s monetary policy [37] => jim grang: the danger lurking in the fed&#8217;s monetary policy [38] => jim grany: the danger lurking in the fed&#8217;s monetary policy [39] => jim gran6: the danger lurking in the fed&#8217;s monetary policy [40] => jim gran5: the danger lurking in the fed&#8217;s monetary policy [41] => jim grant: rhe danger lurking in the fed&#8217;s monetary policy [42] => jim grant: fhe danger lurking in the fed&#8217;s monetary policy [43] => jim grant: ghe danger lurking in the fed&#8217;s monetary policy [44] => jim grant: yhe danger lurking in the fed&#8217;s monetary policy [45] => jim grant: 6he danger lurking in the fed&#8217;s monetary policy [46] => jim grant: 5he danger lurking in the fed&#8217;s monetary policy [47] => jim grant: tge danger lurking in the fed&#8217;s monetary policy [48] => jim grant: tbe danger lurking in the fed&#8217;s monetary policy [49] => jim grant: tne danger lurking in the fed&#8217;s monetary policy [50] => jim grant: tje danger lurking in the fed&#8217;s monetary policy [51] => jim grant: tue danger lurking in the fed&#8217;s monetary policy [52] => jim grant: tye danger lurking in the fed&#8217;s monetary policy [53] => jim grant: thw danger lurking in the fed&#8217;s monetary policy [54] => jim grant: ths danger lurking in the fed&#8217;s monetary policy [55] => jim grant: thd danger lurking in the fed&#8217;s monetary policy [56] => jim grant: thr danger lurking in the fed&#8217;s monetary policy [57] => jim grant: th4 danger lurking in the fed&#8217;s monetary policy [58] => jim grant: th3 danger lurking in the fed&#8217;s monetary policy [59] => jim grant: the sanger lurking in the fed&#8217;s monetary policy [60] => jim grant: the xanger lurking in the fed&#8217;s monetary policy [61] => jim grant: the canger lurking in the fed&#8217;s monetary policy [62] => jim grant: the fanger lurking in the fed&#8217;s monetary policy [63] => jim grant: the ranger lurking in the fed&#8217;s monetary policy [64] => jim grant: the eanger lurking in the fed&#8217;s monetary policy [65] => jim grant: the dznger lurking in the fed&#8217;s monetary policy [66] => jim grant: the dsnger lurking in the fed&#8217;s monetary policy [67] => jim grant: the dwnger lurking in the fed&#8217;s monetary policy [68] => jim grant: the dqnger lurking in the fed&#8217;s monetary policy [69] => jim grant: the dabger lurking in the fed&#8217;s monetary policy [70] => jim grant: the damger lurking in the fed&#8217;s monetary policy [71] => jim grant: the dajger lurking in the fed&#8217;s monetary policy [72] => jim grant: the dahger lurking in the fed&#8217;s monetary policy [73] => jim grant: the danfer lurking in the fed&#8217;s monetary policy [74] => jim grant: the danver lurking in the fed&#8217;s monetary policy [75] => jim grant: the danber lurking in the fed&#8217;s monetary policy [76] => jim grant: the danher lurking in the fed&#8217;s monetary policy [77] => jim grant: the danyer lurking in the fed&#8217;s monetary policy [78] => jim grant: the danter lurking in the fed&#8217;s monetary policy [79] => jim grant: the dangwr lurking in the fed&#8217;s monetary policy [80] => jim grant: the dangsr lurking in the fed&#8217;s monetary policy [81] => jim grant: the dangdr lurking in the fed&#8217;s monetary policy [82] => jim grant: the dangrr lurking in the fed&#8217;s monetary policy [83] => jim grant: the dang4r lurking in the fed&#8217;s monetary policy [84] => jim grant: the dang3r lurking in the fed&#8217;s monetary policy [85] => jim grant: the dangee lurking in the fed&#8217;s monetary policy [86] => jim grant: the danged lurking in the fed&#8217;s monetary policy [87] => jim grant: the dangef lurking in the fed&#8217;s monetary policy [88] => jim grant: the danget lurking in the fed&#8217;s monetary policy [89] => jim grant: the dange5 lurking in the fed&#8217;s monetary policy [90] => jim grant: the dange4 lurking in the fed&#8217;s monetary policy [91] => jim grant: the danger kurking in the fed&#8217;s monetary policy [92] => jim grant: the danger purking in the fed&#8217;s monetary policy [93] => jim grant: the danger ourking in the fed&#8217;s monetary policy [94] => jim grant: the danger lyrking in the fed&#8217;s monetary policy [95] => jim grant: the danger lhrking in the fed&#8217;s monetary policy [96] => jim grant: the danger ljrking in the fed&#8217;s monetary policy [97] => jim grant: the danger lirking in the fed&#8217;s monetary policy [98] => jim grant: the danger l8rking in the fed&#8217;s monetary policy [99] => jim grant: the danger l7rking in the fed&#8217;s monetary policy [100] => jim grant: the danger lueking in the fed&#8217;s monetary policy [101] => jim grant: the danger ludking in the fed&#8217;s monetary policy [102] => jim grant: the danger lufking in the fed&#8217;s monetary policy [103] => jim grant: the danger lutking in the fed&#8217;s monetary policy [104] => jim grant: the danger lu5king in the fed&#8217;s monetary policy [105] => jim grant: the danger lu4king in the fed&#8217;s monetary policy [106] => jim grant: the danger lurjing in the fed&#8217;s monetary policy [107] => jim grant: the danger lurming in the fed&#8217;s monetary policy [108] => jim grant: the danger lurling in the fed&#8217;s monetary policy [109] => jim grant: the danger luroing in the fed&#8217;s monetary policy [110] => jim grant: the danger luriing in the fed&#8217;s monetary policy [111] => jim grant: the danger lurkung in the fed&#8217;s monetary policy [112] => jim grant: the danger lurkjng in the fed&#8217;s monetary policy [113] => jim grant: the danger lurkkng in the fed&#8217;s monetary policy [114] => jim grant: the danger lurkong in the fed&#8217;s monetary policy [115] => jim grant: the danger lurk9ng in the fed&#8217;s monetary policy [116] => jim grant: the danger lurk8ng in the fed&#8217;s monetary policy [117] => jim grant: the danger lurkibg in the fed&#8217;s monetary policy [118] => jim grant: the danger lurkimg in the fed&#8217;s monetary policy [119] => jim grant: the danger lurkijg in the fed&#8217;s monetary policy [120] => jim grant: the danger lurkihg in the fed&#8217;s monetary policy [121] => jim grant: the danger lurkinf in the fed&#8217;s monetary policy [122] => jim grant: the danger lurkinv in the fed&#8217;s monetary policy [123] => jim grant: the danger lurkinb in the fed&#8217;s monetary policy [124] => jim grant: the danger lurkinh in the fed&#8217;s monetary policy [125] => jim grant: the danger lurkiny in the fed&#8217;s monetary policy [126] => jim grant: the danger lurkint in the fed&#8217;s monetary policy [127] => jim grant: the danger lurking un the fed&#8217;s monetary policy [128] => jim grant: the danger lurking jn the fed&#8217;s monetary policy [129] => jim grant: the danger lurking kn the fed&#8217;s monetary policy [130] => jim grant: the danger lurking on the fed&#8217;s monetary policy [131] => jim grant: the danger lurking 9n the fed&#8217;s monetary policy [132] => jim grant: the danger lurking 8n the fed&#8217;s monetary policy [133] => jim grant: the danger lurking ib the fed&#8217;s monetary policy [134] => jim grant: the danger lurking im the fed&#8217;s monetary policy [135] => jim grant: the danger lurking ij the fed&#8217;s monetary policy [136] => jim grant: the danger lurking ih the fed&#8217;s monetary policy [137] => jim grant: the danger lurking in rhe fed&#8217;s monetary policy [138] => jim grant: the danger lurking in fhe fed&#8217;s monetary policy [139] => jim grant: the danger lurking in ghe fed&#8217;s monetary policy [140] => jim grant: the danger lurking in yhe fed&#8217;s monetary policy [141] => jim grant: the danger lurking in 6he fed&#8217;s monetary policy [142] => jim grant: the danger lurking in 5he fed&#8217;s monetary policy [143] => jim grant: the danger lurking in tge fed&#8217;s monetary policy [144] => jim grant: the danger lurking in tbe fed&#8217;s monetary policy [145] => jim grant: the danger lurking in tne fed&#8217;s monetary policy [146] => jim grant: the danger lurking in tje fed&#8217;s monetary policy [147] => jim grant: the danger lurking in tue fed&#8217;s monetary policy [148] => jim grant: the danger lurking in tye fed&#8217;s monetary policy [149] => jim grant: the danger lurking in thw fed&#8217;s monetary policy [150] => jim grant: the danger lurking in ths fed&#8217;s monetary policy [151] => jim grant: the danger lurking in thd fed&#8217;s monetary policy [152] => jim grant: the danger lurking in thr fed&#8217;s monetary policy [153] => jim grant: the danger lurking in th4 fed&#8217;s monetary policy [154] => jim grant: the danger lurking in th3 fed&#8217;s monetary policy [155] => jim grant: the danger lurking in the ded&#8217;s monetary policy [156] => jim grant: the danger lurking in the ced&#8217;s monetary policy [157] => jim grant: the danger lurking in the ved&#8217;s monetary policy [158] => jim grant: the danger lurking in the ged&#8217;s monetary policy [159] => jim grant: the danger lurking in the ted&#8217;s monetary policy [160] => jim grant: the danger lurking in the red&#8217;s monetary policy [161] => jim grant: the danger lurking in the fwd&#8217;s monetary policy [162] => jim grant: the danger lurking in the fsd&#8217;s monetary policy [163] => jim grant: the danger lurking in the fdd&#8217;s monetary policy [164] => jim grant: the danger lurking in the frd&#8217;s monetary policy [165] => jim grant: the danger lurking in the f4d&#8217;s monetary policy [166] => jim grant: the danger lurking in the f3d&#8217;s monetary policy [167] => jim grant: the danger lurking in the fes&#8217;s monetary policy [168] => jim grant: the danger lurking in the fex&#8217;s monetary policy [169] => jim grant: the danger lurking in the fec&#8217;s monetary policy [170] => jim grant: the danger lurking in the fef&#8217;s monetary policy [171] => jim grant: the danger lurking in the fer&#8217;s monetary policy [172] => jim grant: the danger lurking in the fee&#8217;s monetary policy [173] => jim grant: the danger lurking in the fed&#7217;s monetary policy [174] => jim grant: the danger lurking in the fed&#u217;s monetary policy [175] => jim grant: the danger lurking in the fed&#i217;s monetary policy [176] => jim grant: the danger lurking in the fed&#9217;s monetary policy [177] => jim grant: the danger lurking in the fed&#8117;s monetary policy [178] => jim grant: the danger lurking in the fed&#8q17;s monetary policy [179] => jim grant: the danger lurking in the fed&#8w17;s monetary policy [180] => jim grant: the danger lurking in the fed&#8317;s monetary policy [181] => jim grant: the danger lurking in the fed&#8227;s monetary policy [182] => jim grant: the danger lurking in the fed&#82q7;s monetary policy [183] => jim grant: the danger lurking in the fed&#8216;s monetary policy [184] => jim grant: the danger lurking in the fed&#821y;s monetary policy [185] => jim grant: the danger lurking in the fed&#821u;s monetary policy [186] => jim grant: the danger lurking in the fed&#8218;s monetary policy [187] => jim grant: the danger lurking in the fed&#8217;a monetary policy [188] => jim grant: the danger lurking in the fed&#8217;z monetary policy [189] => jim grant: the danger lurking in the fed&#8217;x monetary policy [190] => jim grant: the danger lurking in the fed&#8217;d monetary policy [191] => jim grant: the danger lurking in the fed&#8217;e monetary policy [192] => jim grant: the danger lurking in the fed&#8217;w monetary policy [193] => jim grant: the danger lurking in the fed&#8217;s nonetary policy [194] => jim grant: the danger lurking in the fed&#8217;s konetary policy [195] => jim grant: the danger lurking in the fed&#8217;s jonetary policy [196] => jim grant: the danger lurking in the fed&#8217;s minetary policy [197] => jim grant: the danger lurking in the fed&#8217;s mknetary policy [198] => jim grant: the danger lurking in the fed&#8217;s mlnetary policy [199] => jim grant: the danger lurking in the fed&#8217;s mpnetary policy [200] => jim grant: the danger lurking in the fed&#8217;s m0netary policy [201] => jim grant: the danger lurking in the fed&#8217;s m9netary policy [202] => jim grant: the danger lurking in the fed&#8217;s mobetary policy [203] => jim grant: the danger lurking in the fed&#8217;s mometary policy [204] => jim grant: the danger lurking in the fed&#8217;s mojetary policy [205] => jim grant: the danger lurking in the fed&#8217;s mohetary policy [206] => jim grant: the danger lurking in the fed&#8217;s monwtary policy [207] => jim grant: the danger lurking in the fed&#8217;s monstary policy [208] => jim grant: the danger lurking in the fed&#8217;s mondtary policy [209] => jim grant: the danger lurking in the fed&#8217;s monrtary policy [210] => jim grant: the danger lurking in the fed&#8217;s mon4tary policy [211] => jim grant: the danger lurking in the fed&#8217;s mon3tary policy [212] => jim grant: the danger lurking in the fed&#8217;s monerary policy [213] => jim grant: the danger lurking in the fed&#8217;s monefary policy [214] => jim grant: the danger lurking in the fed&#8217;s monegary policy [215] => jim grant: the danger lurking in the fed&#8217;s moneyary policy [216] => jim grant: the danger lurking in the fed&#8217;s mone6ary policy [217] => jim grant: the danger lurking in the fed&#8217;s mone5ary policy [218] => jim grant: the danger lurking in the fed&#8217;s monetzry policy [219] => jim grant: the danger lurking in the fed&#8217;s monetsry policy [220] => jim grant: the danger lurking in the fed&#8217;s monetwry policy [221] => jim grant: the danger lurking in the fed&#8217;s monetqry policy [222] => jim grant: the danger lurking in the fed&#8217;s monetaey policy [223] => jim grant: the danger lurking in the fed&#8217;s monetady policy [224] => jim grant: the danger lurking in the fed&#8217;s monetafy policy [225] => jim grant: the danger lurking in the fed&#8217;s monetaty policy [226] => jim grant: the danger lurking in the fed&#8217;s moneta5y policy [227] => jim grant: the danger lurking in the fed&#8217;s moneta4y policy [228] => jim grant: the danger lurking in the fed&#8217;s monetart policy [229] => jim grant: the danger lurking in the fed&#8217;s monetarg policy [230] => jim grant: the danger lurking in the fed&#8217;s monetarh policy [231] => jim grant: the danger lurking in the fed&#8217;s monetaru policy [232] => jim grant: the danger lurking in the fed&#8217;s monetar7 policy [233] => jim grant: the danger lurking in the fed&#8217;s monetar6 policy [234] => jim grant: the danger lurking in the fed&#8217;s monetary oolicy [235] => jim grant: the danger lurking in the fed&#8217;s monetary lolicy [236] => jim grant: the danger lurking in the fed&#8217;s monetary -olicy [237] => jim grant: the danger lurking in the fed&#8217;s monetary 0olicy [238] => jim grant: the danger lurking in the fed&#8217;s monetary pilicy [239] => jim grant: the danger lurking in the fed&#8217;s monetary pklicy [240] => jim grant: the danger lurking in the fed&#8217;s monetary pllicy [241] => jim grant: the danger lurking in the fed&#8217;s monetary pplicy [242] => jim grant: the danger lurking in the fed&#8217;s monetary p0licy [243] => jim grant: the danger lurking in the fed&#8217;s monetary p9licy [244] => jim grant: the danger lurking in the fed&#8217;s monetary pokicy [245] => jim grant: the danger lurking in the fed&#8217;s monetary popicy [246] => jim grant: the danger lurking in the fed&#8217;s monetary pooicy [247] => jim grant: the danger lurking in the fed&#8217;s monetary polucy [248] => jim grant: the danger lurking in the fed&#8217;s monetary poljcy [249] => jim grant: the danger lurking in the fed&#8217;s monetary polkcy [250] => jim grant: the danger lurking in the fed&#8217;s monetary polocy [251] => jim grant: the danger lurking in the fed&#8217;s monetary pol9cy [252] => jim grant: the danger lurking in the fed&#8217;s monetary pol8cy [253] => jim grant: the danger lurking in the fed&#8217;s monetary polixy [254] => jim grant: the danger lurking in the fed&#8217;s monetary polivy [255] => jim grant: the danger lurking in the fed&#8217;s monetary polify [256] => jim grant: the danger lurking in the fed&#8217;s monetary polidy [257] => jim grant: the danger lurking in the fed&#8217;s monetary polict [258] => jim grant: the danger lurking in the fed&#8217;s monetary policg [259] => jim grant: the danger lurking in the fed&#8217;s monetary polich [260] => jim grant: the danger lurking in the fed&#8217;s monetary policu [261] => jim grant: the danger lurking in the fed&#8217;s monetary polic7 [262] => jim grant: the danger lurking in the fed&#8217;s monetary polic6 ) </h1> </body>