Jim Grant: Savers lost big at the interest-rate casino. Bond investors could, too
Illustration by Lynne Carty Medically speaking, low interest rates are disinhibitors. They stir the blood, liberate the imagination, and quiet the still small voice of reason that can’t seem to get a word in edgewise.
The degradation is concentrated in leveraged loans—tradable bank debt issued by subinvestment-grade companies . If it’s this bad in a business expansion, you wonder what it will look like in the next slump. Price controls hurt some and help others. They hurt all insofar as they distort the structure of the economy. As interest rates are prices, central banks are implementing the functional equivalent of price controls.
The Federal Reserve undertook this interest-rate doctoring to achieve full employment and a 2% rate of inflation. The unspoken theory in support of the inflation goal is that a little inflation is somehow better than a little cancer. Even if that were true, the Fed seems not to be helping its own cause.
“Traffic—the number of people going to restaurants—is essentially flat,” says David Henkes, a senior principal at Technomic, “because you have more restaurants that are serving more consumers per capita than ever before.” Burger King diners enjoying that anti-inflationary 10-chicken-nuggets-for-$1.49 special may send their note of thanks to America’s central bank.
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