Jim Grant: Honey, I Shrunk the Yield Curve!!

Whether it's going over the fiscal cliff or Spanish house prices suffering a severe fall, there seems to be a universal financial fear of gravity. Even though we are certainly scared of falling, we don't seem to have much fear of altitude. But should we? We talk to Jim Grant, founder and publisher of Grant's Interest Rate Observer, about his bi-monthly outlook for some answers.


On this show, we have openly wondered if the extraordinarily low interest rates charged to the US Treasury have been the result of the Fed's voracious appetite for fixed income securities over the past four years. There is no question that yields have been eviscerated by Fed policy, but is it the result of Fed policy past or present? Is it the current presence of the Fed in the bond market that is keeping rates low, or was it the Fed's accommodative monetary policy during the boom years and the subsequent urge by the private sector to relieve itself of overpriced assets in the bust that has kept yields from rising? In either case, we find fault with the Federal Reserve. It seems the Fed can now claim this: "Honey I Shrunk the Yield Curve!" Only in this scenario, policy wonks in control of the "shrink ray" seem hardly concerned about our new microscopic interest rates. If anything, the lower they go, the more the Fed may print, forcing a new class of indentured investor out to scavenge for more yield on the front lawn. We talk to Jim Grant, founder and editor of "Grant's Interest Rate Observer" and author of "Mr. Speaker!", about the recent announcements from the Federal Reserve.

Plus, on Sunday voters in Japan will head to the polls to cast their ballots in parliamentary elections. If recent polls are any indication, voters look set to elect Shinzo Abe, the leader of Japan's main opposition party, as the next prime minister. In the face of a technical recession and weak exports, he demanded the Bank of Japan begin unlimited QE. Japan has been deflating for the past 25 years, so why should we pay attention to this call from a politician today? We talk to Jim Grant about the possibility of further easing in Japan. Source