Among the participants of the Milken Institute’s global conference, hedge fund manager Ken Griffin has stated his unhappiness with the Fed’s actions to restore economic growth in the United States. The focal point of the Global Markets in Uncertain Times conference was the actions undertaken by the Fed, as well as by other central banks, in order to restore economic growth.
Beside Ken Griffin, the conference featured Madelyn Antoncic, Vice President and Treasurer of the World Bank, Willem Buiter, Chief Economist of Citigroup and others.
One of the points Mr. Griffin has emphasized, during one of his interventions, is that the credit markets are built around the assumption that inflation will always be present. He argues that a borrower and a lender could get together and hammer out a deal, only if they were sure of the presence of inflation, which was essential in picking a suitable interest rate and a risk premium which would satisfy both parties. Griffin goes on to state that deflationary forces are destructive in today’s economy because it is characterized by a high amount of leverage.
Griffin appreciates the efforts of the Fed policy to avoid deflation but he argues that the main priority of the monetary policy should be to maintain a sensible rate of inflation that would restore confidence in the credit markets and lead to stable economical growth. According to Griffin, it would be very unfortunate if the inflation would be take to a point where people would “anchor” to the belief that inflation would persist.
If inflation paved the road to prosperity, there are countless countries before us that would be viewed as the super-powers of today.
Griffin uses this phrase to draw attention to the fact that, while Ben Bernanke along with the Federal Reserve board are focusing their efforts to fight deflation with the use of traditional as well as unconventional monetary policy in the form of quantitative easing, they might fail to spot the risk of high inflation creeping in.
For more on the discussion of the Fed policy, as well as the actions of other central banks, flows of capital and the next big opportunities, click on the video below (the excitement begins at 58:57):
Griffin’s commentary is a must-see, though, and supports why we view him and Citadel as members of the hedge fund industry’s elite, along side the Buffett’s and Soros’s of the world. We could rank this group by AUM figures or performance and they’d be right up there, but it’s sound, refreshing economic logic like this that truly sets the hedgie and his entire team in the upper, upper echelon of their peers.
For a longer look at Griffin and Citadel’s 13F equity portfolio continue reading here.
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