Observing rates & the Fed

In a sense all major economic stories we cover somehow relate back to the 2008 credit crisis; how it changed certain markets and how the reaction to the crisis by major central banks altered the equilibrium of the trading world.

This month is no different as we talk to James Grant, long-term interest rate watcher and founder of  Grant’s Interest Rate Observer (see “Grant’s interest rate observations”). Grant’s 2014 book: The Forgotten Depression: 1921: The Crash That Cured Itself, highlights what he sees as the appropriate response to a major recession.  While not all economic crises are the same, it is interesting to look back and see that prior central bank leadership took a different approach to such an event. The U.S. Government balanced the budget and increased—not decreased —  interest rates in response to that crisis, which ended relatively briefly and set the stage for a period of substantial economic growth. In our conversation, Grant joked that some current economists may be surprised to know that we are no longer in that 1921 recession since  the Feds did not take that one-and-only route to exit it.

On this point, Grant is not so orthodox. He will accept—for argument’s sake—  the point-of-view many economists have made that the U.S. Federal Reserve and other central banks needed to take strong and extraordinary measures following the 2008 crisis, but points out that many of those measures—near-zero interest rates, a huge Fed balance sheet due to endless quantitative easing and negative rates in some places— are still in place nearly a decade later. He says the central bank policies have overstayed their welcome and added “Radical monetary policies beget more radical monetary policies.”

In “Yanking the tablecloth slowly” Grant questions the Fed’s view that QE can be a positive force  for the economy, yet the exit from QE will not cause any problems.

We also take a look at bitcoin and cryptocurrency mania this issue (see “The cryptos are creeping towards the exchanges”).  Going back to our opening thesis, it is hard to view the cryptocurrency trend occurring outside of the 2008 crisis. That shock surely was a key motivating factor to many  cryptocurrency entrepreneurs.  It is a mania that can no longer be ignored. The traditional investment world is asking if they need exposure to bitcoin and there is work being done to provide that access through regulated derivatives products. The Chicago Board Options Exchange and others are looking to list futures and options on cryptocurrencies. We get Grant’s and Mark Cuban’s take on the space as well.

Finally we have a discussion with Cuban, the world’s most famous shark regarding taxes and politics (see “Tax reform, politics, the market & Trump”).