The Federal Reserve is considering a new bond buying program to boost the economy, reported the Wall Street Journal’s Jon Hilsenrath. As part of this program it plans to print new money with which it would buy more mortgage or treasury bonds, but essentially tie-up that money by borrowing it back for short periods at lower rates.
In an interview with CNBC, Jim Grant editor of Grant’s Interest Rate Observer, said he thinks the Fed is manipulating the market and by repressing interest rates, he thinks they are dulling the market’s risk sensors. He said central banks around the world are manipulating currencies:
We should call this what it is, it is: market manipulation. That’s what we call it in the private sector. What the Fed is doing is manhandling the structure of interest rates to the end of achieving what it takes to be desirable macro outcomes. Now if the government instead of manipulating currency would go down to the farmer’s market at 14th street and fiddle with the scales, there would be an understandable outcry from the customers. But the fed and central banks the world over are in unprecedented ways manipulating the value of the currencies they print, they’re printing them by the ton.
The Fed in this latest gambit wants to manipulate long-term interest rates lower. But in so doing it is manipulating perceptions of risk, and it is creating a real inflation in the sense in that people who want to retire in their savings, need much more cash to do it.
And Grant thinks the Fed is dead wrong in its actions. He referred back to the “instructive, historical example” of the 20s when the treasury balanced the budget and the Fed raised interest rates and managed to end the depression. He also pushed for a more stable currency backed by gold or another standard:
We ought to be discussing an intelligent move towards a sound currency by which I mean a currency that is based on a standard and not at the whim and the discretion of a bunch of mandarins sitting around in Washington D.C.. Again the Constitution article 1, section 8, explicitly gives to Congress the power to coin money and in the same breath, the same clause to fix the standard of weights and measures. We have moved so far away from that.
And Grant had some equally harsh words for the European Central Bank which he said is going through an adolescent growth spurt.
…The Fed is a piker compared to what the ECB has recently been doing. I think the point is, the world over we’re seeing unprecedented things. We’re seeing interest rates that are lower than ever, and central banks that have never been more recklessly pro creative, to use warren Buffett’s words, about assets. I mean these central banks are printing like mad, interest rates are as low as they’ve been, and people can’t seem to get enough long-term bonds, because the central banks are manipulating expectations about the future of interest rates. T think it’s all terribly dangerous.
Watch the entire interview at CNBC: