Radio Rallies & Reversals

I've finally gotten around to reading Jeremy Grantham's Q3 newsletter. My only regret is I didn't read it sooner. Over the next week or so, I'll summarize his thoughts, but I suggest you have a read yourself. If you'd like a copy, send me an email or visit www.gmo.com and sign up.

He starts of his newsletter with a summary of lessons learned from recent Fed policy, but I'll share with you his last point: "In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment."

Bottom line - Debt has no long-term effect on economic growth; only real factors such as education, population profile, R&D, etc. Therefore, low interest rates have no long-term effect on economic growth, for its main role is to encourage more debt. The Fed's own data shows this, as GDP growth has been constant since the fifties despite the explosion in debt the last three decades. Their only contribution has been a series of bubbles and their subsequent bursting, the last one resulting in a recession without equal since the thirties.

GB