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James Grant

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Helicopter Money And The Comeback Of Gold
– central bankers have taken it upon themselves to sponsor great bull markets in the hopes of making people spend more because they will feel richer.
That was the theory.
James Grant, September 26, 2015

Governments through central banks have muscled down money market interest rates to zero and in some cases below zero.
Not content with that, they have implemented what economists chose to call «the portfolio balance channel».

That’s a very fancy phrase meaning higher stock prices in the interest of rising aggregate demand.
That was the theory of the Bernanke Fed and it certainly was the theory of the Chinese communists
who sponsored the fly away levitation of the Shanghai A-shares. So the world over – and this goes for Europe as well
– central bankers have taken it upon themselves to sponsor great bull markets in the hopes of making people spend more because they will feel richer.
That was the theory.

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Helicopter Money

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James Grant Remembers The Forgotten Depression Of 1921:
"The Crash That Cured Itself"
zerohedge 21 May 2016

As's Jacob Wolinksy explains, in 1920–21, Woodrow Wilson and Warren G. Harding met a deep economic slump by seeming to ignore it, implementing policies that most twenty-first century economists would call backward.

Confronted with plunging prices, wages, and employment, the government balanced the budget and, through the Federal Reserve, raised interest rates.

No “stimulus” was administered, and a powerful, job-filled recovery was under way by late in 1921.

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The depression of 1920-21 has much to teach modern policymakers
The Crash That Cured Itself. By James Grant.
The Economist print 8 November 2014

The economic slump that afflicted America in 1920 and 1921 was a nasty affair.
Real output fell by some 9% and unemployment may have soared as high as 19% — the statistics are patchy —
making it easily twice as bad as the so-called Great Recession of 2007-09.

The Forgotten Depression: 1921: The Crash That Cured Itself. By James Grant.
Buy from

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Vad kan man lära av historien?
I sin bok Money on the mind hade James Grant tänkt besvara frågan hur det kom sig att 1980-talet blev som det blev.
Men boken kom att handla om USAs finansiella marknader, från banklagen av år 1864 till det femåriga lånet på Yuogo-bilen
(byggd i den dåvarande ekonomiska, politiska och monetära unionen med snarlikt namn) vid slutet av 1980-talet.
Rolf Englund i Smedjan nr 4/1992

The modern financial animal is wont to assume that he or she lives in an age of science. Just peruse the economic research that the great central banks produce.
Even the titles of the papers are incomprehensible. The truth is we live in an age of pseudoscience.
James Grant, FT July 20, 2015

The central banks’ forecasting models have failed to predict the future.
Quantitative easing and zero per cent interest rates — policy centrepieces of the post-2008 era — have failed to restore what we used to call prosperity.

Ten years ago, Greece sold 30-year bonds at a price that yielded 4.45 per cent, just a quarter percentage point higher than the prevailing yield on German debt of the same maturity.
Spanish and Italian bonds were quoted at the time at yields identical to Germany’s.

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Economic theory discredited

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Money is a store of value, quoth the obsolete textbooks.
Post-Lehman, money is rather an instrument of public policy.
In the past seven years central banks have conjured more than $10tn of digital wampum.
Still, prosperity eludes them.
James Grant Financial Times January 5, 2015

The virus of radical monetary intervention has entered the world’s political bloodstream. In the US, the UK, the EU, Japan and Switzerland, QE and zero per cent interest rates now pass for mainstream central banking doctrine.

Sooner or later, there will be a recession and a wicked bear market in stocks — there always are. How will the central bankers then respond?

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Wampum är traditionella, heliga pärlor tillverkade av snäckskal, vilka spelade en stor roll bland indianerna i det nordamerikanska nordöstra kulturområdet.

US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941

March 6 marks the first anniversary of the world not coming to an end.
The world economy has, it seems, been saved from a fate even worse than our Great Recession.

James Grant February 19, 2010

At the end of 2007, no less than $9.4 trillion in dollar-denominated securities were sitting in the vaults of foreign investors.
United States has run heavy and persistent current account deficits — $6.7 trillion in total since 1982
James Grant, New York Times September 23, 2008

James Grant, the editor of Grant’s Interest Rate Observer, is the author of the forthcoming “Mr. Market Miscalculates: The Bubble Years and Beyond.”

The dollar is the world’s currency. And it is on the world’s opinion of the dollar that the Treasury’s plan ultimately hangs.

In the absence of faith, what stands behind a faith-based currency?

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US Dollar

$700 billion rescue plan

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Jim Grant of Grant's Interest Rate Observer on Bloomberg
"What manner of incompetence - both at the public policy level and at the so-called financial professional level - led to this mess?"

And the people who are paying are the savers, among others.
March 26, 2008

Treasuries are about as compelling a value as the kind of stuff you find in your hotel mini-bar.
Ten-year securities yielding 3.5 percent, much less than the year-over-year depreciation of the purchasing power of the dollar.
"Treasuries at these great interest rates constitute a return free risk".

Read more here

Rolf Englund
Next Bubble Is Forming: U.S. Government Bonds

Vad kan man lära av historien?
I sin bok Money on the mind hade James Grant tänkt besvara frågan hur det kom sig att 1980-talet blev som det blev. Men boken kom att handla om USAs finansiella marknader, från banklagen av år 1864 till det femåriga lånet på Yuogo-bilen (byggd i den dåvarande ekonomiska, politiska och monetära unionen med snarlikt namn) vid slutet av 1980-talet.
Rolf Englund i Smedjan nr 4/1992

You are Chairman Bernanke. What do you do?
A conscientious fellow, you try first to do no harm. You have made a lifelong study of deflation and the Great Depression. Of all the mistakes you could make at the helm of the Federal Open Market Committee, there is one you really want to avoid: You do not want to go down in history as the scholar of the Great Depression who inadvertently steered the highly leveraged U.S. economy into Great Depression Part II. You will be slow to tighten monetary policy when home prices are deflating, let the cpi be what it may.
James Grant, 9/6 2006

Blame Greenspan
James Grant, Forbes Magazine, 2001-09-03

Blame Greenspan
James Grant, Forbes Magazine, 2001-09-03

The chairman’s ill-timed optimism seduced investors and helped inflate the bubble.

Recent sensational congressional testimony has revealed what Wall Street security analysis usually is not. It usually is not analysis. It is marketing, and if by mistake an analyst should produce a piece of analysis instead of a marketing brochure, the miscreant is summarily fined one seven-figure bonus.

However, it wasn’t only the bought-and-paid-for analytical community that led the investing public down the garden path. There were greater seducers, not least the chairman of the Federal Reserve Board.

Wall Street, though not always corrupt, is almost always bullish. The fundamental source of distortion of investment values over the past several years was the speculative bubble. A bubble is a boom so outsized it leads even level-headed people to lose their judgment. Alan Greenspan, whose 1996 suggestion that investors are susceptible to bouts of “irrational exuberance” temporarily made him the public’s least favorite central banker, fell in with the new age. He seemed not to notice that the boom he seeded (and accommodated and celebrated) was becoming a monstrosity. On Mar. 6, 2000, just 96 hours before the Nasdaq market top, the chairman gave, at a conference in Boston, a speech entitled “The Revolution in Information Technology.”

Through its monetary policy the Fed was then leaning against the wind. The 5.75% funds rate was on its way to 6.5%, where it would remain until the cutting began in earnest on Jan. 3. In his rhetoric, though, Greenspan leaned the other way. The Boston speech described a world embarked on a new age of technological wonder, productivity growth and transparency.

Previously, said Greenspan, “most business decisions were hampered by a fog of uncertainty. Businesses had limited and lagging knowledge of customers’ needs and of the location of inventories and materials flowing through complex production systems. In that environment, doubling up on materials and people was essential as a backup to the inevitable misjudgments of the real-time state of play in a company. Decisions were made from information that was hours, days or even weeks old.”

Within nine months Silicon Valley would wake up to discover that its customers had disappeared. Far from lifting, the fog of uncertainty blanketed the executive suites of even the companies that made the computers that supposedly had removed the uncertainty.

Of course, the chairman told the Boston conference, technological benefits can be realized only through capital investment, and on the prospects for investment he became, for him, lyrical.

“Technological synergies have enlarged the set of productive capital investments,” said Greenspan, “while lofty equity values and declining prices of high-tech equipment have reduced the cost of capital.... The fact that the capital-spending boom is still going strong indicates that businesses continue to find a wide array of potential high-rate-of-return, productivity-enhancing investments. And I see nothing to suggest that these opportunities will peter out anytime soon.”

Another central banker might have realized that the availability of essentially free speculative capital distorts decision making, coaxing out more capital investment than can profitably be put to use. Not Greenspan, who went on to lend his imprimatur to the preposterous valuations then prevailing in the business-to-business branch of the Internet trade. The Bloomberg B2B stock index peaked three days later—and has now fallen 95%.

The cyclical cards lay face up on the table in February 2001, when Greenspan delivered his semiannual report to Congress. He sounded wise after the fact, declaring that a “temporary glut” in high-tech manufacturing was “inevitable at some point.” But he missed the point that the glut was the product of the bubble—and of the systematic undervaluing of capital and credit, and therefore of risk.

Greenspan ventured an ill-timed expression of optimism for corporate profitability, then in the process of collapsing. Corporate managers, “rightly or wrongly,” remain sanguine about the prospects for technological innovation continuing to drive productivity growth and profitability, he said. “At least,” he went on, citing a source that sounds even more dubious today than it did then, “this is what is gleaned from the projections of equity analysts, who, one must presume, obtain most of their insights from corporate managers.”

No one demands that central bankers be clairvoyant. But they can and should be prudent.

Investing is a difficult art no matter what the security. The special challenge of bond investing is that even the bull markets are treacherous. Sidney Homer, the historian, wrote about the last quarter of the 19th century: "The 25-year bull bond market brought impressive capital gains only to those who were lucky enough to hold truly long-term bonds of high quality."

At a low enough price, even an intrinsically bad investment can be made appealing. US Treasuries, left for dead in the 1980s at the end of a 35-year bear market, proved exceptionally lucrative exactly because they were cheap. At yields of 5 1/2 per cent or 6 per cent, today's government securities lack the same armour-plating.

The market expects no untoward events - its implied long-term inflation forecast is pure sunshine. Over the next seven to 10 years, it can be inferred, the CPI will rise by an average of no more than 1.8 per cent a year - never mind that over the past 12 months it has climbed by 3.5 per cent.

(This is the forecast embedded in the respective prices of inflation-indexed and non-indexed government bonds; at an annual average rise in the CPI of 1.8 per cent, indexed and non-indexed securities would perform identically.)

True, the government that does the borrowing is the same one that prints the money and computes the inflation rate but the left hand of state is unlikely either to know or to care what the right hand is doing.

In the corporate world, there is no such separation of power and interests. The coin of the realm in the ranks of top management is stock options. To give the stock price a helping hand, executives buy in shares and effect acquisitions, borrowing as necessary. The longstanding decline in corporate creditworthiness is thus largely premeditated.

"By lending money to private companies," writes David Swensen in Pioneering Portfolio Management, "bond investors provide funds to managers who stand to benefit by reducing the value of the loan. Entering into arrangements with such a stark misalignment of interests poses an ongoing threat to the corporate bond investor's position."

The threat is more immediate than ever because of the trap door that has opened underneath the corporate bond market. The longstanding bear market in speculative-grade credits has spilled into the investment-grade world.

Bonds do not go up like stocks but they do crash like them.

In the nature of things, their upside is limited. What is new is their proneness to disaster.

Last Thursday, Kellogg, one of the few remaining double-A rated US industrial companies, disclosed plans to acquire Keebler Foods for Dollars 4.4bn in cash and assumed debt.

"This is transformational," said Carlos Gutierrez, the chairman of Kellogg, of the supposedly brilliant prospects entailed in the merger of snacks and cereal. He was speaking to the equity constituency.

"Pro forma this purchase," wrote Ms Levenson, add-ressing the creditors, "Kellogg's debt will balloon to Dollars 6.4bn, with leverage increasing to nosebleed levels . . . In keeping with our slide rule, management's presentation (on Thursday) noted the credit quality effects of this acquisition only in the last of 50 slides (excluding the recap at the end)."

More about real interest rates

James Grant: Climate control for the New Economy
Financial Times 06-Mar-2000

The purest examples of New Economy businesses are those that, while not actually generating a profit, command a mammoth stock market capitalisation. Pacific Century CyberWorks - which, at the ripe old age of 10 months, has just acquired Hong Kong Telecom - is a worthy example. Others include Akamai,, Ariba,, Level 3 Communications,, Red Hat, VA Linux Systems and Verticalnet. The 10, a mere sample, have a combined stock market capitalisation of Dollars 176bn.

Joined at the hip
James Grant in FT, August 16, 1999

Bond traders are displaying more signs of worry about the state of the US economy than equity investors, but sooner or later credit concerns will affect share prices

James Grant - Talking up the market
In its search for profits, Wall Street is playing the bull-market game by highlighting positive news about companies. But even honesty and plain speech are cyclical

The Loss of Fear, the Rise of Speculation, and the Risk to American Savings.
By James Grant.

Vad kan man lära av historien?
Rolf Englund i Smedjan nr 4/1992

I sin bok Money on the mind hade James Grant tänkt besvara frågan hur det kom sig att 1980-talet blev som det blev. Men boken kom att handla om USAs finansiella marknader, från banklagen av år 1864 till det femåriga lånet på Yuogo-bilen (byggd i den dåvarande ekonomiska, politiska och monetära unionen med snarlikt namn) vid slutet av 1980-talet.

James Grant, som utger ett respekterat nyhetsbrev, Grant's Interest Rate Observer, citerar med väl behag ord om att sedan Romarrikets dagar en fortgående upplösning har skett av lagstiftarens stränga syn på skuldsättning. Rester härav levde kvar ända in i vår egen tid. Mången av oss nu levande kan kanske erinra sig sina föräldrar diskret, med sänkt röst, förtroligt antyda till en nära vän att "NN har gjort KK". Det var nästan lika ha som att vara från skild.

Hans Thulin är inte stigmatiserad på samma vis - om honom talar många med skräckblandad förtjusning. Och "den utblottade" finansmannen Erik Penser blev, efter ett enda framträdande i TV - i och för sig på goda grunder - en småfolkets hjälte i kampen mot storbankerna.

Grant ser 1980-talet som ett led i en process av "lånedemokratisering och risksocialisering". Trots de stora bankförlusterna under 1980-talet, har insättarna i USA inte någon gång deltagit i en allmän rusning till bankerna för att "för säkerhets skull" ta ut sina pengar. Det kan vi tacka statens garanti (Federal Deposit Insurance) för. Å andra sidan har allmänhetens uppfattning att staten står bakom både goda och dåliga banker lett till att värdet på en banks anseende för säkerhet, och därmed kanske själva bankidén, gått förlorad. Varför ha sina pengar i Enskilda Banken, när man kan ha dem i Första Sparbanken, båda är ju Too-Big-to-Fail? Och varför skall S-E-Banken leva upp till Enskilda Bankens traditioner? Upp med en namnskylt på det tempelliknande huvudkontoret och full fart på utlåningen!

Inför regeringens kommande förslag om införande av EG-liknande regler för statlig insättargaranti är Grants bok mycket tankeväckande. Stoppa förslaget - eller inför åtminstone någon självrisk i systemet!

Det enkla och sköna

Monetarismens enkla och sköna tanke är att mängden pengar, penningmängden, bör öka jämnt och i takt med ekonomins långsiktiga utvecklingspotential. En av svårigheterna är att definiera och avläsa mängden pengar. ("What is money, really?") Ar det Ml, M2, M3 eller MI-B? (I Tyskland är det M3 och Japan M2 + CD, sägs det).

Likt ett barn som en gång bara var "a gleam in his father's eye" kan pengar, menar Grant, redan innan de uppstår genom kreditgivning, påverka beteendet. Vet man, som man gjorde på 80-talet, att höjningen av lånet är en formalitet, framstår den nya båten, bilen eller aktiespekulationen som avgjort mer lockande och gripbar än vad fallet är på 90-talet, när man helst vill undvika diskussioner med bankkontorets föreståndare.

Självklart, inte sant? Men det är av grundläggande betydelse att förstå hur pengar, via kreditexpansion och kreditkontraktion, skapas respektive förintas. Här är Grant mycket pedagogisk.

I stället för guld

När banken ger en person, låt oss kalla honom Thulin, ett lån, sätter banken in pengarna på hans checkräkning. Bankens balansräkning har ökat med, säg, 100 miljoner kr. Banken har en fordran I debet och en skuld I kredit. Thulins banktillgodohavande har ökat med 100 miljoner, och därmed har också penningmängden (M3) ökat med lika mycket. Kreditexpansionen är igång.

Någon gång på 90-talet beslutar sig en betryckt villaägare för att avbetala skulden på sitt kontokort. Han tar av sin lön och sänker sin skuld. Saldot på hans checkräkning (och därmed M3) minskar med 1 000 kr och bankens balansräkning blir 1 000 kr mindre. Under kreditexpansionens glada dagar steg villor, bostadsrätter och restaurangnäring i värde; under kreditkontrationen sker det omvända och konjunkturen vänder neråt.

Tidigare höll guldmyntfoten ländernas kreditexpansion under kontroll. Det var så i USA, England och Sverige att den medborgare som så önskade faktiskt kunde växla sin sedel mot guldmynt. Centralbankens sedelutgivning var sin tur bunden till guldreserven. För sina anhängare var guldmyntfoten, skriver Grant, "the rule of law applied to money". Härigenom framtvingades, på ett sätt som Grant bättre förmår beskriva, en snabbjustering av uppstående obalanser.

Folket hade rätt

Det var också för att växla sina dollar mot guld som det amerikanska folket inför presidentskiftet Hoover/Roosevelt 1933 bestormade bankerna och framtvingade deras stängning. Folket hade rätt. Roosevelt avskaffade guldmyntfotens inlösensrätt för medborgarna. Nixon avskaffade den slutgiltigt även för utländska centralbanker.

I USA var så kallade National Banks länge förbjudna att lämna lån mot säkerhet i fastigheter. Banker skulle inte vara pantlånare. Grant beskriver spekulationsvågorna gällande mark, fastigheter och aktier och främst 1920-talets utveckling fram mot kulmen 1929.

Han uppehåller sig mycket vid den av andra föga uppmärksammade frågan om hur det kom sig att det tog så lång tid, ända fram till 1950-talet, innan lusten att låna kom tillbaka. Det erinrar om dagens situation där I USA centralbankschefen Greenspan försöker uppnå en "soft landing" på ekonomins hangarfartyg. Han känner att han inte kommer fram, drar gasen - räntan - i botten, men motorn, penningmängden, svarar inte. Farten sjunker.

Grant drar också en mycket tänkvärd parallell mellan England och USA på 1920-talet och Japan och USA på 1980- och 1990-talen. England hade under finansminister Churchill återgått till guldmyntfoten på en orealistisk växelkurs (jfr England i dag och knytningen till ERM). Bank of England förmådde USA att sänka räntan mot slutet av 1920-talet (för att förhindra guld att lämna England). Detta ledde till att aktiespekulanterna fick ny kraft inför 1929. I mitten av 1980-talet var det USA som på hotellet Plaza (då ägt av Donald Trump) fick japanerna att sänka sin ränta, vilket ledde till den japanska bubbla som nu spricker och hotar hela världsekonomin.

Betald glömska

Grants bok är en rik guldgruva att ösa ur för alla som vill försöka förstå vad det var som gick fel på 80-talet. På finansmarknaden har allting hänt förut; och inom vetenskapen är kunskapen kumulativ, men inom finansvärlden är den cyklisk, skriver han. Det borde gå att lära av historien. Som den gamle engelske bankmannen suckade: "Visst lär sig folk av historien, men sedan glömmer de bort det igen."

Men man borde väl kunna kräva, tycker man, att folk som har betalt för att komma ihåg, skall göra det?

Rolf Englund

James Grant: Money on the mind (New York: Farrar, Straus & Giroux, 1992)

Denna artikel är, tycker jag, en av mina bästa - klicka här för fler av mina bästa opus.

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