Signatories of a letter sent to then-Federal Reserve Chairman Ben S. Bernanke in 2010 warning of the risks associated with the bank’s policy of quantitative easing are standing by their claims -- even as the biggest U.S. companies are flourishing, inflation is muted and holding Treasuries has been one of the best trades out there.
The Nov. 15, 2010, letter signed by academics, economists and money managers warned that the Federal Reserve’s strategy of buying bonds and other securities to reduce interest rates risked “currency debasement and inflation” and could “distort financial markets.” They also said it wouldn’t achieve the Fed’s objective of promoting employment.
Four years later, members of the group, which includes Seth Klarman of Baupost Group LLC and billionaire Paul Singer of Elliott Management Corp., are facing a different economy. U.S. companies now boast low debt, big cash piles and record profits. They’re creating jobs at the fastest average pace since 2005 and unemployment has dropped to 6.1 percent from 9.8 percent when they wrote the letter. The recovery has underpinned an almost 200 percent gain in the Standard & Poor’s 500 Index since March 9, 2009.