Jim Grant told Fox Business that the Federal Reserve has kept itself in emergency mode for too long, with interest rates near zero for almost 7 years. In fact, remaining in emergency mode has only made the next emergency more likely. Grant fears that central banks (the Fed in particular) have become far too powerful in their ability to bail out irresponsible bankers by destroying the wealth of savers. 

The Fed, the government… are instituting a de facto nationalization of essential banking activities… It can’t be that the single purpose of banking is to prevent banks from going bankrupt. Yet this has become in effect the policy of our minders at the Federal Reserve. They are becoming quite all-powerful…”

Highlights from the interview:

“[Keeping rates low] was certainly well-intended, but nobody’s getting any younger here. It’s like 6 or 7 years since the crisis and still we are in emergency mode. The emergency mode itself, I submit, is going to bring closer and not push away the likelihood of another such emergency. Different of course, because they’re never quite the same. These attempts to manhandle the price system, to impose prices, to manipulate the yield curve, to levitate asset prices by main force, all these things are distorting…

“The Fed is doing its all to depopulate bond desks and to reduce bond trading… The world talks a great deal about the great likelihood of a liquidity problem in the bond market. On form that might not be the thing that happens…

“We should understand that risk is often where you don’t look for it. Almost proverbially, almost by necessity… But again, to emphasize, the Fed, the government, especially Daniel Tirillo’s branch of the Fed, his battalions of ‘safety first’ people at the Fed are instituting a de facto nationalization of essential banking activities. There’s a man named Christian Classen who runs Nordia, the biggest bank in the Nordic part of Europe who said that it can’t be that the single purpose of banking is to prevent banks from going bankrupt. Yet this has become in effect the policy of our minders at the Federal Reserve. They are becoming quite all-powerful…

“If by saving you mean the humble yet formerly profitable and even virtuous act of putting money to work at minimal risk for minimal yet positive return, that activity is still gravely disadvantaged by these policies.”