Tuesday, February 14, 2012

James Grant: Fed Should Heed Lessons of 1920s

“The Fed is not content to let interest rates find their levels, they must repress them, and they are not content to let housing prices find their levels, they seek to intervene to prop them up,” Grant said in a radio interview on Bloomberg Surveillance with Ken Prewitt and Tom Keene. “The results of all this intervention is not to cure what ails us, but prolongs the symptoms of what distresses us.”

What is discouraging about the Great Recession is that it seems not to end. The historical comparison is useful to invite us all to consider the present day orthodoxy and if it is possible that it is wrong. I think that it might be wrong.”

The U.S. Treasury should begin to issue longer-dated bonds backed by gold and investors should also buy gold as it is “something substantial,” Grant said. The bond bull market of the past 30 years has made investors complacent to the risk of owning bonds, he said.

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