Nassim Taleb: We’re Going To Pay Price For Fed’s Policy Mistake

Nassim Taleb, an economist and best-selling author, claims that the Federal Reserve committed a serious error 15 years ago that ordinary Americans are now being forced to pay for.

The author of Black Swan claims that after 15 years of easy monetary policy from the Fed, there is now a whole generation of traders who don’t know how to operate without zero interest rates.

Taleb foresees negative effects as Americans experience a rising cost of capital firsthand.

“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 grew anxious. 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 critic of cryptocurrencies also expresses concern that an overheated and perhaps declining real estate market, as several analysts have discussed recently, may be a sign of the impending economic reckoning.

“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.”