Manipulation of Long-Term Interest Rates
Long-term interest rate markets have become growingly dysfunctional under the 2% inflation standard. The journey started with the Greenspan Fed in the second half of the 1990s leaning against rate rises in line with the productivity growth boom. The dysfunction grew under the “breathing in inflation” policy after the 2000–02 recession with a huge carry trade forming into long-term rates; the Fed helped stimulate the speculative narrative alongside about a crushing Asian savings surplus. Then in the 2008 Great Panic, the Bernanke Fed gained authority to pay interest on reserves and embarked subsequently on massive balance sheet expansion—both fatal to a well-functioning long-term rate market. The path back to normal where signals are meaningful there must include restoring monetary base to the pivot of the monetary system.
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