This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Fed Policies a 'Horror Show' for U.S. Economy: Grantham




By Abby Schultz, Special to CNBC.com

Fund manager Jeremy Grantham, long a Federal Reserve critic, issued a blistering attack on Fed policies Wednesday, likening its strategy of low interest rates and monetary easing to a Halloween horror movie that is dangerous and destabilizing to the economy.

"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," Grantham, chief investment officer of GMO, an investment management firm in Boston said.

Grantham's quarterly note to clients came with a mock horror movie image titled, "Night of the Living Fed: Something Unbelievably Terrifying." ( Click here to read the note.)

More from CNBC
Best Cities to Relocate to in America
Luxury Holiday Gifts 2010
Democrats Retain Edge in Campaign Spending

The comments by Grantham, a well-respected voice in the financial community, contributed to the selloff in stocks on Wednesday. Stocks extended their losses as concerns grew that the Fed's next round of quantitative easing may actually be less agressive than expected.

The central bank, which has already bought about $1.7 trillion worth of Treasury and mortgage-related debt, is expected to launch a second round of asset purchases next week of anywhere from $500 billion to $2 trillion. But the Wall Street Journal reported Wednesday that the central bank may start buying only a few hundred billion dollars over several months.

Grantham, meanwhile, said the Fed's policies under both Alan Greenspan and Ben Bernanke have led to runaway commodity prices, asset bubbles, a falling dollar and are likely to have no long-term benefit for the economy.

The investment manager said if he were a "benevolent dictator," he would "strip the Fed of its obligation to worry about the economy and ask it to limit its meddling to attempting to manage inflation."

The problem with quantitative easing -- the Fed policy of stimulating the economy through actions such as purchases of long-term debt -- is it has historically led to the creation of more debt in the economy, as well as higher asset prices, and has not led to higher rates of GDP growth.

Instead, lower rates "encourage speculation in markets and produce higher-priced and therefore less rewarding investments, which tilt markets toward the speculative end," Grantham wrote. "Sustained higher prices mislead consumers and budgets alike."

Grantham's attacks were not centered just on the current administration.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%
YHOO $44.28 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs