Comments
Transcript
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TSThat was very entertaining. It is always good to listen to him. Agree or disagree, he is fun to have on the box.
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CTToo bad he needs to learn more about Bitcoin.
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KAI’ve been following Mr. Grant since I was a young credit analyst in the mid-1990s. I enjoy reading his work and listening to him. His work is entertaining. His ideas are mostly non-actionable. From an opportunity cost perspective, following his advice would have been a very costly mistake over the past 20-30 years.
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CAI like that the transition effect harmonizes with the bow tie.
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TSI have many wishes. But one wish is for Ben Bernanke to live a long enough life to see what a fool he has been
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AZI love how he drops the mic on Bitcoin. LOL.
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JBJust think, if NIRP's continue, the zero interest mortgage becomes a possible (if fanciful) idea. In which case, I'll take an interest only mortgage, and I can live in any house I want. Furthermore, the homeless problem is now solved! Central banks to the rescue!
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GGQuantum computing is BTC killer!! It is coming!!
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ALAnyone with access to electricity and a phone/computer can verify a BTC transaction for authenticity. Cheap and fast compared to trying to authenticate a piece of gold.
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RKBeautiful.
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CWI am digital native and - of course - a Bitcoin guy. Gold was great before I discovered Bitcoin, but the downsides are just too many for my level of technical understanding: I can verify my Bitcoins myself with a simple full node on my laptop. How will I ever verify that the gold I bought is real? How would I carry gold with if the political situation becomes dramatic as in Venezuela? I can try to, but chances are high my gold would get confiscated easily. With Bitcoin I can just remember the seed, travel to the other end of the globe and take all of my stored wealth with me. And then the S2F aspect: gold is still king here, but Bitcoin's S2F rate is trending towards infinity within the next few years. So I will definitely stick to Bitcoin, and cash out of the few remaining ounces of gold that are still stuck in my bank vault.
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JHFantastic and highly eloquent, as ever. Thank you, Jim! Favourite line was the last one - whatever you believe, this has got to make for a good laugh.
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DRThe dumb cental banks like UK and US sold all their gold for $200 or even less. The smart central banks loaded up on gold. None of them own crypto. It can (will?) be outlawed with a stroke of a pen and made worthless, probably in favour of state-issued crypto. Already in the works.
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RHThe 73 year old likes the 10 billion year old asset over the 10 year old asset. What a surprise. Jim Grant was old when the internet gained popularity, how could he begin to understand a non-sovereign, scarce, digital asset.
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DSWatched Mr. Grant as a kid and he always spoke my language. Let's organize a protest walk against the FED in NYC and DC.
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ETThis was... nothing insightful here that left me with a deeper understanding than I had before. The tired, general bla-bla you hear from a college prof. Just signed up for membership to come to this as the first current video. After the level of analysis in a lot of the free content, am really disappointed.
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FVWe need Jim back on a serie... combination of humor, intellect and story telling not to be found anywhere else.
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RSre banking system, low rates are not the issue per say, flat yield curve is! one could imagine -5% front end vs 0% 10y would be very profitable environment for banks. and re broader economy it would just reflct preference for future rather than immediate spending. is that so crazy when demographics are declining? and regarding Grants comment that deflation already happened in history, it might be right, but what never happened is a natural (non war related) global population decline induced deflation!
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UJYou don't need an electrical socket to transfer Bitcoin you can send it by letter or something else.
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KJI would have liked to hear Jim’s views on the point that Powell tried to raise rates last year - should it have been done differently, did he stop too soon, should he have kept going etc. He correctly identified the political element. I wonder what he would do himself if he were in charge? Would a huge recession be worth it to get rates higher, for example? Is that inevitable or could it be avoided?
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MSI know what he's going to say, because I consume every bit of Jim Grant that I can, but he says it so well that I could listen to him talk for hours. Wish he were here at least monthly.
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ALInterviewer: "What's your view of the current rate environment?" Jim Grant: "What's striking is there is no predecessor in millenia..." Debt is money, until its not.
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EFGreat video. Always glad to listen to Jim. Love his enthusiasm and he looks & sounds like the most youthful 73 year old I’ve ever seen. Oh yeah, and talks a load of sense too.
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DMNo one can deliver withering criticism of our Moneyed Elite better than Jim Grant.
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dbJim won't just call out the collusion that is rampant nor will any insider. The level of crime at the highest levels of government & finance is staggering. Why does Morgan Stanley never ever lose money in a trading day? Well let me ask you this question...Do you have a brain? Each day is scripted out at the NY Fed while we wait for value investing to start working they have other plans. Waiting for Godot.
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JJMy most troubling thought was along the "Savers don't win in this world". He's right, and it hurts in both my wallet and my mindset. I've spent a lot of time and effort sacrificing and doing without to raise capital for investments. I'm seeing my equities stretch themselves thin trying to expand. I'm seeing people either getting very wealthy or head over heals in debt. Houses where I am at are only selling because rents are even higher. I've come to realize that in the beginning you want to get more money, but after a while you want to just hang on to what you have worked for. Anyways, I appreciate Grant's views; be well.
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AC@realvision Why not have a short series with Jim Grant (and Grant Williams as a wingman) going around London and New York and telling in 3 episodes the true story of central banking?
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dwGold and digital currencies will rise and fall and will continue to be successful in the future. I think Grant may infer with the electric socket comment; if you own physical gold, it is real hard money for hundreds of years, with no third party risk. Where trillions of global debt has gone negative, its an honest zero yield.
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MSRegarding the last comment about gold vs bitcoin where Mr. Grant prefers gold over bitcoin because of the need for electricity. How would one transact a serious amount of gold without a car or other vehicle that requires electricity/other similar resources? Will Mr. Grant bring by a few kilograms of gold by bike when he’s buying a house?
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RKSimply superb! Thank you.
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DLI absolutely love Jim's last comment, that a store of value should not require an electrical socket to make it work. ...and I'm a Bitcoin guy. Great talk Jim.
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CBMy favorite part was where Jim had no one to interrupt! I kid I kid! Thank you Jim for the consistent doses of sanity that you deliver.
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TH"So, I think that the central bankers are a pretty incurious lot" deserves an award for masterful understatement.
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SUGreat and brilliant 😀
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JRI love Jim Grant's bit of wit throughout the interview. He is by far one of the most knowledgeable expert RV has on, please bring him back at least semi-annually for his current views.
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JK"Trump himself is an exponent of that, but he doesn't know it. He doesn't know many things. But he doesn't seem to realize that he himself is talking MMT. He says, let's have a 0% funds rate and let us spend money on infrastructure. That is the MMT program. So we got it already. It feels great, doesn't it?" Uh... lets see how this shakes out. Feels like an experiment.
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TSIt's indeed a peculiar world where the world elites themselves don't know what to do next at a time when interest rates are zero, disruptive technologies are on their way of changing the society as a whole and geopolitical tensions may just about create some major upheaval in the time to come
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JVI suggest an update to the overall site format - In the TOPICS section add GOLD vs BITCOIN and in the title format of every video produced for that series include GvB or Gold vs Bitcoin. Thank you for the content
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SS"You wouldn't want your least favorite mother in law to own this security."
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APLike a favourite book. You've read it many times and still it still yields an insight - or the same one from a different angle...or maybe even just a reminder of a basic truth you momentarily forgot. I could listen to Jim Grant all day (disclaimer: I already pay to read him).
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GCEnjoy listening to Grant, but nothing new here.
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SSAaah!!! So good!!! Please have him back twelve times a year!!
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MFPlease forward this video to the ECB
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MZ"Without accurate rates, people do business in the dark, or in a hall of mirrors." Priceless - in both senses of the word.
JIM GRANT: Price of money is called rate of interest. The most consequential price in capitalism, it seems to me. Interest rates do all these essential things, discounting future cash flows, and measuring investment hurdle rates, and giving us a sense of how much credit risk there is in a given transaction. And when you suppress, or otherwise, manhandle those rates, you are withholding, destroying information. You are letting people do business in the dark, or in a hall of mirrors. We are all, to a degree, blinded by the so-called financial repression.
I am Jim Grant. And we are here in these palatial office, from which comes every two weeks Grant's Interest Rate Observer. I'm going to be talking about everything, which seems like a big topic, but we're going to do our best.
INTERVIEWER: What's your framework for thinking about the economy?
JIM GRANT: Well, everyone gets up in the morning and goes to work, and tries to do better. So what's different-- I mean, that's a steady state, people strive to improve themselves, and therefore, the world. So I'm certainly not bearish on that activity. What complicates things is money, credit, and the organization of people in what we call the economy. The economy is kind of a amorphous thing. How's the economy? The economy.
I think the problem is not the humans getting up, going to work, and striving, but rather, the setting in which they do that. And that setting has a great deal to do with such things as interest rates and central banking, and the like.
INTERVIEWER: Can you give us a brief history of central banking?
JIM GRANT: A brief history of the biggest question in the world. Well, central banks were founded to do the government's work. I'm thinking now the Bank of England, beginning in the waning years of the 17th century. It wasn't to lift up the value of equities. It wasn't to iron out the fluctuations of the business cycle, because there were a few equities, and the business cycle was not really invented as a concept, yet the central bank was to have helped the government raise funds with which to carry out the work of the state, including the waging of war. So let's fast forward, shall we? To, say, 1700, 200 years, or so, when the Federal Circuit started in 1913, or '14.
The idea was to iron out the spikes in the rate of interest that seemed to roll around every autumn, which was crop moving season. So that was the big event in a agricultural economy, was financing the movement of crops from the interior of the country to the seaboard. And you needed money to do that. And credit was sometimes tight, so the Federal Reserve, it was thought, would provide seasonal liquidity. It would make the currency elastic, was the term. So that sounds benign enough. What happened next was a succession of mission creeps. And what set out as a neutral institution to provide liquidity to everyday commercial IOUs and to help farmers and wholesalers with the movement of grain, that all-- it kind of snowballed.
Until it has come to, about what? Has come to financial repression. I'm skipping about seven, or eight decades here, but we haven't got all day for this. So now, what we have, is, like, my goodness, what don't we have? We need the Fed to provide ways we learn now, overnight re-purchase facilities, whatever that might be. You can ask about that. And we need the Fed to keep the stock market up. We need the Fed to keep the-- yes, now we learned that the Fed also has a political role. William Dudley now proposed the Fed ought to be, like, targeting the president. So the Fed now is all over the place doing all manner of things. It has supposedly two remits, or jobs--
One is maximum employment, and the second is stable prices, or price stability. But stable prices, it describes there-- it defines-- it chooses to define as a 2% rate of rise in the-- That's not stable. That's inflation, right? And then full employment. Full employment, where, on Wall Street, everywhere? Once, at an open forum, I asked the president of the Federal Reserve Bank of New York, Mr. Williams. I said, has it occurred to you, Mr. Williams, President Williams, I said, has it occurred to you the Fed's actual two remits are to finance speculative bubbles, and then, in the end of those, if they burst, to come in and to clean up the mess. So the remit would be arsonist and fireman. Has that occurred to you?
And he said, no. So you can read books, and books, and books on this topic, on the cycle, and on the central bank's complicity in speculative bubbles. And on the theory of mispriced interest rates. But in about 1818, British statesman called Lord Liverpool summarized this in one delightful short sentence. And here it is. The tendency of inconvertible currencies is to create fictitious wealth bubbles, the collapse of which produces inconvenience, at the lifelong inconvenience, standby for inconvenience.
INTERVIEWER: What's your view of the current rate environment?
JIM GRANT: What is striking about today's rates, such as they are $15 trillion, or so, as we sit here talking, less than zero in nominal terms, what's striking about these rates is they have no predecessor in millennia of interest rate history. Every time I write this line the first time in 2,000 years, and I wrote 3,000 years, and finally I see looking back at some of our issues at Grant's, 4,000 years, and nobody's corrected us yet. Yeah, and we'll keep going until somebody says, no, not 4,000. But anyway, there's certainly capitalists that lead us to zero, which is central bankers, because there's nothing like this in the history of interest rates, as long as that history might be.
In the depression there were no-- Great Depression, but there is nothing like this. There have been before negative treasury bill yields. It's not uncommon. But what is unprecedented is negative nominal note yields and bond yields, never before. And I think that's the result, not of natural market forces but rather of central bankers. The question is, did rates fall, or where they pushed? And they say, well, they fell on their own accord after the events of 2008. That was natural enough. But to go below zero, no, that's the artifice of the central banks.
INTERVIEWER: Are demographics and deflation pushing rates down?
JIM GRANT: Well, there are a lot of reasons that people give why rates should be low. And some of them are, kind of-- they're persuasive. They'll say that the rate of growth in the world's economy, as if we could measure it, is going to dwindle because the birth rates worldwide, and many of the developed countries are dwindling, certainly, in this country, they are. OK, that makes sense, since debt levels are high, that makes sense, too. Debt is a kind of a weight on production. The miraculous advances in digital technology ought to bring down costs, therefore, prices. That, too, is a plausible reason.
But we've had deflation before in the world and never before have we had negative nominal rates. We've had deflation in the final quarter of the 19th century, the 1875 period in 1900. And great innovation prices fell because it became cheaper to produce things. Wages fell, but less than prices, therefore, real wages went up. It was a time of disappointment for some. But on balance around great prosperity and advance in the human condition.
So I don't buy it that these rates are some sort of natural outgrowth of deflationary conditions. They say that they're the creation, the willful creation of people like Mario Draghi, and the BOJ, and, indeed, the, kind of, brain children of Ben S. Bernanke PhD, who was one of the intellectual leaders on all of this.
INTERVIEWER: What's the role of corporate debt in rate policy?
JIM GRANT: The president of the Dallas Fed, early in springtime, say, 2019, said approximately this. He said, we ought to not raise rates and perhaps lower them, because the burden of corporate debt is so heavy. And you think about that, and it is very low rates that encourage, indeed, insight the creation of debt, because after all, if you can borrow for next to nothing after tax, why not do it and go buy a company, or create a private equity fund, or something? But the accumulation of those debts makes the economy more fragile, because when incomes fall, revenues fall, indebted people, indebted companies struggle to pay interest expense. And if you don't pay interest expense, you lose the ownership, you lose control of the company. You file for bankruptcy.
So the more net debt there is in a society, the more fragile is the economy, and the more reluctant are the central bankers to raise interest rates, and the more disposed they are to lower them. So it becomes rather a vicious circle.
INTERVIEWER: Why did WeWork bond prices plunge?
JIM GRANT: Well, the question to me about WeWork bonds is not why they were roughed up so badly in the past couple of weeks but how they ever got to par. Here's a company that wanted you to know that it wasn't going to cover fixed charges. You knew that because of the way it did its own business, because the way it spent, because of the accounting adjustments that the-- community adjusted EBITDA, that is adjusted, adjusted, adjusted, adjusted, adjusted EBIT. As I count, I think I got all those in there. And certainly, WeWork is not alone.
I mean, Wall Street forever has generated accounting metrics to accommodate the deal doers and the promoters. EBITDA itself was a creation of the investment banking generation in the late 1980s, early '90s to facilitate leveraged buyouts. But what is new now a little bit is the extreme of the accounting adjustments, or the add backs to pro forma EBITDA. The investment banks will have you believe that after this merger, or this roll up is completed, they will have two companies, one company will have all of these efficiencies, and then they'll fire people, and they'll save money. But it turns out that these promised add backs don't really add up.
But The root, root cause, the fundamental remote cause of all this debt issuance and the mispricing of credit, it seems to me, is the scramble for yield at a time of artificially low rates. People have to have interest income, at least they feel they must. People don't have to have interest income, or they certainly want it. And they bend over backwards to get it. In the bending, they take considerable risks. And those risks roll up together and they constitute one of these bumps in the night that tips us over into a panic, or a recession.
INTERVIEWER: What's your view of China's trade surplus with the US?
JIM GRANT: The United States is either the beneficiary, or if you like, the victim of that currency, which we call the reserve currency. The reserve currency is the world's principal monetary brand. Way back when it was a pound of sterling, today it's the US dollar. And if you own the reserve currency, that means that you can spend more than you save. It means that you can consume more than you can produce. That's what a deficit in trade means. And everyone seems happy for a while, maybe a long time. So we import things. Well, we like that. The things are sensibly priced. Indeed, they seem cheap to us.
Go to Walmart and you're astonished at how cheap things appear. That's good. The Chinese, for their part, keep factory chimneys smoking when people give employment to factory workers. And you got these financial claims called treasury bonds, which yield something. So that's OK for them, too. Until such time, the as the lack of factory jobs in one country, say, this country, and the paucity of yields in the other countries, say, China, crystallize into a trade dispute, maybe there's more to it than merely a sense of a poor bargain. But in the case there is a dispute, and one side says, we really need more manufacturing jobs, and we're going to put up import barriers, we call them on tariffs on imports, and we don't want so much of your manufactured goods. But you, please, continue to buy our treasuries.
And the other side, called this side China, might say, well, actually, you can do that, you can put up tariff barriers, but we think we're not going to buy so many soybeans, or treasury bonds. And that is a problem. And that's kind of where we are now.
INTERVIEWER: What's the risk of ultra low rates?
JIM GRANT: Well, the central bankers, especially in Europe, seem not to consider the possibility that lower and still low rates, verging on low rates, that this succession of policy initiatives might actually be counterproductive. There is an analog in medicine, if you administer a drug to a patient, the drug doesn't seem to be working. And you give some more and the patient seems actually to be getting worse. And if you give some more, still, the patient really is not feeling well. A thoughtful doctor might pause and say, I wonder if this medicine is actually efficacious, if it isn't perhaps poisoning my patient. You might at least consider that thought.
That's something that seems