DoubleLine Podcasts

S9 E5 James Grant, Founder – Grant’s Interest Rate Observer

James Grant, founder of Grant’s Interest Rate Observer and author of the biography “Bagehot,” the life of times of the muse of modern central banking (published in 2019), returns to “The Sherman Show” to discuss, among other topics, paradoxical market valuations, why the Federal Reserve is “a clear and present danger to your wealth,” the threat of central bank digital currencies to liberty, the accelerating “heretical union” of monetary and fiscal authorities, and the prospects for an acceleration in the rate of inflation. This discussion was recorded Nov. 17, 2020.

Among his greatest market preoccupations, Mr. Grant tells podcast hosts Jeffrey Sherman and Samuel Lau, is the fact that “the world is in love with sterile securities … that pay you just about nothing. … The world’s central banks are pledging to depreciate or debase the currencies in which these ultra-low-yielding claims are denominated, and still we collectively can’t seem to get enough of them.”

In a time of the Fed rapidly expanding its activities beyond its charter, Mr. Grant, a historian of the central bank, notes that Fed mission creep began almost from its beginning. “The Fed opened its doors in 1914,” Mr. Grant notes, “and within three years the United States was at war, and the entire business model of the Fed was turned upside down, and the Fed began doing things that the founders had never contemplated. It lent against the collateral of Treasuries in the banking system. It monetized debt hand over fist. It did everything that Carter Glass, the progenitor of the Fed, promised it would never do.”

What at the Fed should shock us today? “That Jerome Powell, the chairman of the Fed, came out and said something about working `side by side’ (I think that was the phrase) with the Treasury. Every gold bull cocked his or her ears. We could not believe it because the chairman was advocating another breach of monetary best practices, namely, the separation of fiscal church from monetary state. In other words, the overt monetization of the public debt.”

Central bank digital currencies (CBDCs) under study at the Fed and other central banks could endow government with “unlimited snooping power,” Mr. Grant warns. His “foremost objection” to CBDCs “is the nose of the camel under the tent of liberty. Why wouldn’t the government use digital currencies to abolish paper currency? Why wouldn’t it come to know how we are spending our money and where we have stashed those Krugerrands in expectation of a possible acrimonious divorce (although about that personal risk I assure you I wouldn’t know)?”

People at the Fed “are idiot savants,” Mr. Grant tells Messrs. Sherman and Lau. “They know nothing about the past. Their entire focus is on their models and recent precedent. If you look at the scholarly citations in the back of any of the Fed position papers, the oldest citation goes back only as far as, say, 2010. They have no historical framework. They believe that they control events. No, events will presently control them because events are a little bit like the coronavirus. They are unpredictable. They are sometimes quite benign, but they are sometimes malevolent.”

Guest Speaker Bio

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