Posts
Saturday, April 16, 2011
James Grant on the Fed and Inflation
I am not going to claim to be able to understand everything that James Grant is saying in this interview with Consuelo Mack. But if you don't trust the Federal Reserve or the Wall Street speculator class, you will revel in James Grant's analysis and diagnosis of our current financial condition. As you may know, Grant is one of the most highly respected commentators on matters financial, especially on matters that concern interest rates and the credit markets. Enjoy!
Subscribe to:
Post Comments (Atom)
7 comments:
the phrase "wall street speculator class" is a very disturing characterization of millions of people ...
It is a demagogic label that only exists to dehumanize ... it should not be used by you Stuart ...
Jim Grant is very judicious in his characterization of what is currently going on on Wall Street. I don't think he is talking about millions of people.
As I understand his argument, the Federal Reserve has been doling out large amounts of money at a near-zero interest rate to banks and investment banks.
If you can borrow at near-zero and then invest the money in treasury bonds that pay a few percentage points you are making lots of money. If you can invest it in other assets you can also make lots of money.
If you can do these trades on margin you can make even more money, but the someone has to be putting up the loan you receive, at very low interest. When you do so you are speculating.
I take it that Grant is referring to the fact that the banking system is more interested in taking these speculative positions than in loaning money to new businesses.
As it happens Wall Street and the environs are doing pretty well these days, much better than is much of the rest of America.
Stuart,
I assumed those were your words and not a quote from Grant ... If they were a quote I don't fault you for passing them along ...
I would be careful about assuming that all of "Wall Street" is doing well ... many sectors of the business are doing well but even in those sectors individual companies (and people) are losing money as well ... such is the nature of a market economy ...
Broad brushes with terms like "Wall Street" are easy labels but they are fraught with mischaracterizations at the detail level ...
I would point out that that your simplification of "borrow at zero invest at a few percentage points" vision of what "Wall Street" does ignores alot of details that make that characterization way to simplified ... as an example the difference between the Fed Funds rate and the coupon on US Treasuries has almost always been several percentage points apart ...
What is the difference between Fed Funds at 0 and treasuries at 2% and Fed Funds at 3% and Treasuries at 5% ? In your formulation none ... well, they've had this sort of spread for decades ...
A bank can't simply borrow from the Fed for whatever it wants to use the money for ... it can only borrow from the Fed for very specific reasons ... to flip the money into a higher yielding investment is not one of those reasons ...
I knew that I should have left this to Grant. As I understood it, the Fed wanted to reliquify the banking system by lending it money on the cheap.
Probably, I misunderstood. Do you think that Jim Grant has misunderstood what is going on?
no I don't think Grant misunderstood ...
I just don't like the broad brush of the labels used ...
I've worked on "Wall Street" since 1985 and I've seen the results of this sort of characterization of greedy "Wall Steeters" trickle down the the average American on too many occassions to think it doesn't have consequences ...
Over the last decade I've spent a fair amount of time in small town Pennsylvania and I make it a point to not tell folks that I work anywhere near Wall Street, I've seen their reaction and attitude change too often to repeat that mistake ...
Let Grant fight that fight ...
btw ... love your site ... some of the best human behavior posts on the intertubes ...
Post a Comment