Sam Zell: Bernanke Should Go to ‘Deserted Island’

Wednesday, 13 Feb 2013 11:40 AM

By Dan Weil

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Real estate legend Sam Zell has harsh criticism for the economic policy of both the Federal Reserve and the Obama administration.

If Zell were Fed Chairman Ben Bernanke, he would “go to a deserted island where nobody can find me when the results of QE3 [the third round of quantitative easing] come through,” Zell tells CNBC.

And what should the Fed do with its massive easing program? “Stop,” he says.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Fed easing will spark inflation. Eventually the Fed will have to exit the accommodative policy. And that’s where the rubber hits the road, Zell says. “How's the Fed going to get out of all this stuff and at what cost? I think we're creating the underpinnings of a significantly inflationary environment.”

The economy can function just fine without the Fed’s help. “I don't think there's any question it could. It has for 200 years,” he notes.

The Fed’s not aiding the housing market. “Two years, three years ago mortgage rates were 7 percent, and now they're 3 percent,” Zell explains. “Have you seen any wild charging to buy houses? No. I don't know that lowering the cost of capital is necessarily the determining factor. . . . The bigger question is what are we doing for growth in other parts of the economy.”

The Obama administration hampers growth. “It's hard for me to believe we will get back to [a 3 to 4 percent] growth rate as long as Washington continues to have a negative bias toward the business community,” he adds. “It ain't going to work. In the end, the business community basically is the job creator.”

To be sure, Zell also said Republicans in Congress have some work to do. “I think both sides in Washington are really a problem,” he explains. “I think the answer is to get them together in the middle, not on the extreme. What we have, as evidenced last night again [in President Barack Obama’s State of the Union address], is someone who doesn't seem to appreciate the position this country is in.”

We must realize that government can’t solve all our problems, Zell says. “The safety net is important, and people who need help with food stamps are important,” he states. “But you don't want to go from having to help 20 million people on food stamps to helping 50 million.”

Pro-business policy is what would actually improve people’s lives. “You may look like you're trying to help corporations, but if it helps the middle class in the end, it's much more important than all these well-intentioned things that are counterproductive,” he maintains.

Zell isn’t the only one launching broadsides at the Fed for its largesse.

Star bank analyst Dick Bove of Rafferty Capital Markets says the central bank’s easing campaign is doing little to boost the economy and is preventing bank earnings from soaring even higher than they already have recently.

“I couldn’t care less what the Fed does,” he tells CNBC separately. “The Fed has sat there — and I'm a big Bernanke supporter — and they've cut interest rates to a level which is crippling bank earnings to some degree and crippling the economy.”

The Fed has targeted the federal funds rate at zero to 0.25 percent.

Bove says that before the Fed embarked on its rate cuts in late 2007, 19.5 percent of Americans’ income came from passive investments. That compares with 12.8 percent now.

“That means they've just taken away a staggering amount of money from the elderly population in the U.S. and put a whole bunch of them on food stamps,” Bove says.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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