Jim Grant of Grant’s Interest Rate Observer dissects Fed Chair Janet Yellen’s testimony on Capitol Hill and looks at why bond yields continue to head lower despite the Fed’s taper.
Jim Grant: Yellen needs to speak more clearly
the fed is tapering and yet bond yields are falling. can you help us make sense of this world? i think she can help us make more sense if she would only speak more clearly. in what way? if she had said the following things we would know exactly where she stands. as it is. we had to read between the lines. if she said, for example, we believe in price control. we believe in market manipulation and we believe in the phillips curve, the phillips curve being the trade-off between employment and inoperation. each of these ideas is widely discredited. each is dearly embraced by the federal reserve, and you can in fact tees out from her remarks that she is a believer in all three of these heresies. it’s not chairman yellen, but the entire fed is built around these doctrines. for example, the idea that you must have 2% inflation to be in the bloom of economic health. from 1962 to 1966 we had growth rates in excess of 4% and 5%. you have a national history in other parts of the world that that would be called progress. right. but isn’t that true that that’s not the case today because of the presence of debt. everything is always different. but the feds — the fed, it concedes its models are not all they might be. it has never really owned up to using history all to collectively. you know, there was a measured decline in prices year over year between 1954 and ’55. the country survived it, right? janet yellen says today that protracted periods of loan interest rates have potentially and conceivably lead to reaching for yield. how would you describe — by the way, you’re the perfect person to ask about this because she kind of hinted at it. how frothy, bubbly, if you will, do you think conditions are in parts of the credit market. what concerns you the most? she mentioned the junk bond market and called it the high yield market which isiest year’s designation. ain’t no high yields. very, very dicy marginal speculative credits are creating five handles and they are priced to yield a 4.something percent and janet yellen did not touch on the moral quandary that low interest rates introduce into our country. grandmothers, grandfathers, savers are figuratively on their hand and knees and rooting around in bushes and between sofa seats and loose change with which tustain themselves in times of no interest rates. that seems to be part of the discussion and it out to be front and center.