fireworksThe lovely Lauren Lyster, formerly of Capital Account and now the new host of Yahoo’s Daily Ticker, interviewed SD’s favorite Fed-basher Jim Grant regarding the Fed’s latest FOMC statement.

Grant stated that if creating credit was able to successfully reactivate business activity the world would have been richer many generations ago, that the Fed’s actions are counter-productive, that QE funds injected into the economy is money in search of mischief, and that Bernanke’s manipulation of interest rates will fail spectacular with major fireworks as the price of interest rates find their own free market valuation.

As always, Jim Grant’s interview is a MUST WATCH!!

 

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Regarding the Fed’s attempt to stimulate business activity with quantitative easing Grant stated:

If it was as easy as creating credit to levitate an economy or to reactivate business activity the world would be richer many generations ago.  GDP came in reading negative, which was rather a shock…we have more or less a 1-2% growing economy, an economy that for American terms is a low-level virus.   The Fed means to re-energize this through the creation of credit.  The Fed intends to buy $85 billion with a B of securities every month.  You might ask where does it get that money? 

Lyster responded: Where does it?

Grant:  It creates it.  It didn’t exist before the Fed materialized it through the very humble action of a keyboard and a computer.   Notice that this money is coming into the system without any commensurate increase in production.  This is money in search of mischief, and it is likely to find it.

The Fed’s actions are counter-productive.  The GDP print coming in negative is perhaps an anomaly, perhaps due to a non-recurring draw down in defense spending, but the important thing about the economy is that it is not a characteristic American economy.  It is missing the dynamism, and the entrepreneurial zest that has characterized this country.

Lyster asked Grant whether the Fed may take any credit for the recovery of the housing market. Grant replied:
No, they may not.  America is like Major League Baseball.  Try as they (the Fed) might to wreck it, they can’t seem to do it.  There is an irrepressible will to grow in this country.

Regarding when interest rates might rise Grant replied:
The Fed is in my mind suppressing interest rates.  Interest rates are a very important price.  Ben S. Bernanke has come out himself against price controls, and yet he persists in controlling this one important price.  Price control ultimately fails, and when it fails, the failure is replete with all manner of drama and fireworks as prices find their own levels. 

Grant’s full interview is available at the link below:

http://www.youtube.com/watch?feature=player_embedded&v=KRoGvgE2JUc#!

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  1. Thanks for posting this Stockman interview, 4 oz. 
    He’s scary correct.  Some factoids are pretty evident.  75% of homes in some areas of Fla are beng bought by Canadians;  those lucky to escape that popping property bubble.  10% of Sou Cal homes are being bought by Chinese, particularly those politicians who were part of the government’s changing of the guards.  It’s estimated that $100 billion or more left that country.  Hedge funds are buying 100 to 1,000 home tranches from the TBTF banks.  These are homes never see a retail market. The homes are bought en bloc for cash.  At this rate it’s estimated that home ownership will drop from 65% to 50%, turning this country in a nation of renters.

    • Considering the recent housing market history, it is fair to say that home ownership got ahead of itself to a considerable degree.  A large number of people got “liar loans” who never should have gotten ANY loans.  I am all for home ownership but also recognize that not everyone should or can afford to own a home.  With 47% of the country on food stamps, 53% home ownership could well be the reasonable max.
       
       

    • As they say, Mary, it takes money to make money.  Those who have money can make more.  There seems to be a logarithmic scale in this with the 1st $10k being about as difficult to save / earn as the next $90k.  The trick is for people to start as early in life as they can with saving and then move into investing so their money can work for them.  It takes time and some knowledge but that knowledge is readily available on-line or in libraries.  It CAN be done.

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