Jim Grant: Be Extremely Wary of Fed Manipulation of the Economy

Friday, 30 Mar 2012 01:41 PM

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Investing in the current environment is like walking in a hall of mirrors, making it very hard for buyers and sellers of assets to properly engage, warns Jim Grant, founder and editor of Grant’s Interest Rate Observer.

The problem is the Federal Reserve, which continues to “manipulate” markets in order to artificially prop up asset values and, it hopes, fix the U.S. economy.

“The Fed got out of the central banking business many years ago and is now in the central planning business,” tells CNBC in an interview.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

Much like a fixer at a horse track, the Fed’s role in the market is at best dishonest and at worst a source of great confusion, Grant asserts.

Quantitative easing, the policy of creating trillions in new money from thin air, has made it nearly impossible to judge value, he says.

“The Fed systematically overrides the price mechanism. It is in the anti-capitalism business, which is not what the founders intended,” Grant says.

“I think the Fed ought to get out of the manipulation business. It ought to begin normalizing interest rates. It ought to forswear intervention in markets with the eye toward improving the macroeconomy. Prices tell us something about the nature of value, and it ought to stop imposing itself between buyers and sellers in the marketplace.”

U.S. Federal Reserve Chairman Ben Bernanke has begun to talk up the inflation target, perhaps to jawbone the market in advance of policy changes. Several Fed voting members have warned that interest rates would have to rise before the late 2014 target now in place.

“As always, we have to look at the inflation side and be comfortable that price stability will be maintained and that inflation will be low and stable," Bernanke told students at George Washington University this week, Reuters reports.

"Those are the things we'll be looking at. There's no simple formula but as the economy strengthens and becomes more self-sustaining then at some point. . . the need for so much support from the Fed will begin to diminish," Bernanke said.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here



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