Economist and best-selling author Nassim Taleb says the Federal Reserve made a grave mistake 15 years ago that regular Americans will now have to pay for.
In a new interview on CNBC, the Black Swan author says that there is now an entire generation of traders that have no idea how to operate without zero interest rates after a decade and a half of loose monetary policy from the Fed.
Taleb warns of fallout to come as Americans learn how to deal with a higher cost of capital the hard way.
“In 2008, we had a debt problem. The Fed put the interest rates at zero for fifteen years. Now, lowering rates to zero made no sense. They panicked. They didn’t try to lower it to 3%, they went all the way to zero. And once it’s at zero it’s very hard to raise it, so now we’re going to have to learn to live within an environment with higher interest rates. And 15 years, that’s a generation of traders, a generation of financial participants who don’t know what interest rates mean.
So welcome to the new era. In the new era, we have more debt than we had before. The Federal Reserve’s primary job is price stability, and monetary policy is something that is short term. They used that tool in place of a structural reform. It’s not made for that, so that’s a big mistake and we’re going to pay the price.”
The outspoken crypto critic also warns that an overheated and potentially weakening real estate market, which other analysts have touched on in recent months, may be a symptom of the economic reckoning he’s warning of.
“I don’t know when it will come, but let’s look at what we have. It’s more than a hundred trillion of real estate valuation. We’re not at 3% mortgages, we’re at 7% and we’re going north. The methodology of the startup business changed. In the past, they used to be selling you cash flow, now they’re selling you future funding, they’re going to be selling it to someone else, so the whole structure needs to tumble.”
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