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Fed Queen

by Gormack on June 21st, 2021

Daniella Cambone asked Jim Rodgers in a recentĀ  Stansberry Research interview what he would do if he were made chairman of the Federal Reserve. Without hesitation Jim said he would resign. The David Gilmour line “There’s No Way Out of Here” came to mind.

In a Wealthion interview Adam Taggart asked Danielle DiMartino Booth the same question. By contrast, Danielle did not back away, instead taking a play out of the Paul Volcker playbook. Here is her response:

I would certainly completely get of Mortgage Backed Securities QE. That would be the first thing, and I wouldn’t Taper, I would rip the Band Aid off and I would say we are doing more harm than good.

And I would communicate that Zero Interest Rate Policy has been a failure; that it has time and time again fed financial instability and therefore the Fed was going to establish a new floor of two percent, never again to be breached, such that the boom and bust cycles that have been fomented by Zero Interest Rate Policy are not to be repeated in the future.

These would be very unpopular things! The 20% of US Corporations that are Zombies would go away. But longer term that would open up the universe for new entrants, for new job creators, for innovators. Heck, China’s allowing more defaults now than the United States!

We have to get rid of the Zombies to make up for the sins of the past and we have to acknowledge that Zero Interest Rate Policy has been a failure, and we have to get out of the Housing Market.

To Danielle’s comments, Adam added:

So you embrace the cleansing fire. Let’s take our lumps, but let’s get it over with and we’ll be able to start a sustainable baseline after that rather than just trying to keep this whole house of cards propped up.

There are companies in America with strong balance sheets. There are companies in America that will weather what’s to come. There are companies with pricing power. So there are strong companies out there and survivorship bias will be a powerful force to contend with on the other side of whatever is to come.

The Creative Destruction which is a cornerstone of true Capitalism – we have taken that out of the equation, along with Price Discovery.

With all the intervention that has been going on you are advocating Creative Destruction. It’s going to be painful, but it’s the kind of pain that will be beneficial in the long run if we get all of the malinvestment cleared.

Very well said Danielle and Adam!

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