Jim Grant is a big doofus. I see him walking down Wall Street nearly every day, passing my office, looking every bit the part of Big Bird from Sesame Street, only with a scowl. And to think I used to like this guy! But that was before I met Warren Mosler and discovered MMT.
For those of you who don't know, Grant is publisher of Grant's Interest Rate Observer, which is the out-of-paradigm, hard-money-advocating, pompously-written rag sheet that he's been putting out for ages.
Like all of these Austrian clowns, Grant's in demand with the media. That's probably why he showed up on Tom Keene's radio show on Bloomberg the other day, where he droned on like some lunatic conspiracy theorist, hurling his usual ignorant attacks at the Fed and central banks in general. From Grant's mouth came such enlightened statements as "central banks were confusing the 'black art' of central planning (what isn't centrally planned these days, anyway?) with the traditional art of central banking" (Huh??) and other such nonsense.
But his best line was this:
"The Fed owns the stock market."
I kid you not. That's what he said...the Fed OWNS the stock market.
Oh really? Well, here is a screenshot of the Fed's most recent statement. Can anyone show me where you see stocks, equities, S&P futures or anything even remotely stock related on "Factors Affecting Reserve Balances?"
If you've perused the statement you'll see that there is nothing even close to stocks on the Fed's balance sheet. Just a bunch of government securities, loans, some foreign currency, and a tiny bit of gold.
Now don't get me wrong. I fully understand what Grant is alluding to. He means that the Fed's "manipulation of interest rates" (yeah, that's what the Fed does, Jimmy) could be an effort to get to get people to put money into the stock market on the hopes that higher stock prices feed through to higher confidence, more spending and investment, rising employment, etc.
That may or may not work, but one thing is crystal clear...there is no direct channel to the stock market from lower interest rates. None. Granted, some might argue lower rates make stocks more attractive from a valuation standpoint (all else being equal) and that might be enough of a reason to get some people to buy (and others to sell), but there is no direct channel from interest rates to higher stock prices. If you don't believe me, check out Japan. Interest rates there have been zero for the better part of 20 years and stocks haven't done anything. Even worse, they've gone down.
What, then, is Jim Grant talking about and why is Tom Keene according him so much reverence? (Keene seems positively smitten by Grant.)
As usual, I don't have a clue. Chalk it up to nothing more than mainstream media support for a crazy belief system that is based on fantasy over fact.
13 comments:
Mike,
All of this stuff is like I'm re-living the 1990's... Jim Grant, etc.. "Bankruptcy 1995", etc..
There is nothing fresh or interesting about these people and their programming. Nothing hopeful. All false.
It's like they are stuck in the 1990's. It's stale, old, unedifying.
and they have ALL BEEN WRONG.
I would have to think that a new fresh perspective on all of this stuff would "sell" in today's media... it's 2012 for crying out loud.
good luck on Bloomberg this Friday!!!
Resp,
"If you don't believe me, check out Japan. Interest rates there have been zero for the better part of 20 years and stocks haven't done anything. Even worse, they've gone down."
Ummm... So what do you think is going to happen to us over the next 20 years with 0% interest rates?
Why do these guys love bow ties so much?
I was just going highlight the bow tie thing in a broader context, so glad you brought it up :)
The principal reason these clowns are media darlings is because they speak fast, they sound plausible, and they look the part (eg. the wise and considered appearance of a bow tie ... or Santeeli's glasses on, glasses off schtick). It's almost irrelevant what they say (and like Matt highlights, they are not prone to getting it right). As long as they keep selling fear, and playing into mainstream prejudices, this is what ratings are all about. Viewers don't want to think too hard, it's a sad fact of life.
One other thing that annoys me is that he is essentially spruiking a variant of trickle down economics, an idea that is as flawed as they come. Rising tides lift yachts, drown the plebs! But it's almost like they prfer to look at macroeconomics from the wrong way round. Real confidence comes from increasing incomes (something the US has not had in more than a decade), particularly in the context of a balance sheet recession. This increases demand, and investment flows from that. Whay would it be the other way around? And guess what ... it's not. Look at what corporations are actually doing.
apj
supply side = the upper class is superior
Why wouldn't they love it?
apj,
All of this stuff is literally unwatchable anymore... it's garbage media, bow ties and all.
And none of these people are YOUNG.
Warren Buffet, Munger, Trump, Gabelli, Gross, Rogers, CNBC has Langone and Marcus on, who else... ah Alan Simpson, Rubin, Greenspan, Laffer ..all fossils...
does anybody ever retire? Do something REAL?
My continued hope is Mike can break thru and break the mold so to speak...
Resp,
Matt, old white men are the ones who have the wealth in USA and Europe.
They are the 'important smart people' who have ruined us all but some way we continue to listen to all this self-made crooks. Why?
Because they represent and ARE the status quo, prominent figures in society, even if they are crooks, so they must have interesting things to say.
Truth is, the man in the street, and the younger the worse, don't care (thanksfully) a crap, each day they care less because the disconnect between this idiots in their ivory tower McMansions and the average citizen is abysmal.
The irrelevance of people in power is getting bigger, no one fucking cares about what they say. This is how big things start, not listening to old clueless ideas.
"The irrelevance of people in power is getting bigger, no one fucking cares about what they say. This is how big things start, not listening to old clueless ideas."
Exactly. This is what happened in the late Sixties and early Seventies. Not only did it transform the culture, it transformed the economy in many ways too as younger people spent differently than previous generations and succeeding generations followed their lead until now. Now something different is in the air again, although the direction it will take is not yet clear. But the growth of the "green" lifestyle and sustainability movement, digital media, social networking, an emphasis by some on extreme individualism and personal liberty and by others on community, solidarity and coordination, are rising trends. World fusion in music is also a leading edge indicator.
There is also an urgency. In the Sixties and Seventies, it was Vietnam and the draft, and a pretty total rejection of the existing culture, which was being replaced by a new openness to experience that went far beyond "sex, drugs and rock and roll," although, of course, those were powerful elements of change that have gone mainstream since.
Now the sense of urgency is economic and political. Many young people don't see a future for themselves the way culture and institutions are presently constructed, especially with the level of debt that is simply presumed although young people never had to face it before.
Count on new trends bringing big change.
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Great post Mike. Your post on the Fed and other CBs "money printing" versus inflation was also good (as were the comments). Perhaps it might be more accurate to say the Fed is controlled by the market rather than the other way around:
"...while they believe that the money supply should be determined endogenously... they argue that the current stystem of state money means that the money supply is entirely exogenous and under the control of the state authorities. They then attribute much of the cyclical behaviour of the economy to government meddling with the money supply and the rate of interest.
The Post-Keynesian schoool...argues that though it may appear that the state controls the money supply, the complex chain of causation in the finance sector actually works backwards. Rather than the state directlly controlling the money supply via it's control over the issue of new currency, private banks and other credit-generating institutions largely foce the state's hand.
Thus the money supply is largely endogenously determined by the market economy, rather than imposed upon it exogenously...Statistical evidence about the leads and lags between the state-determined compnent of money supply and broad credit show that the latter 'leads' to the former (Kydland and Prescott 1990). If the Austrians were correct, state money creation would instead precede private credit creation. " -- Keen, debunking economics.
""there is no reason to suppose that the ultimate effect on the amount of money in circulation or on incomes would bear any close relation to the initial injections." -- Kaldor.
I try and correct people's ignorance about the Fed at some popular sites like Youtube in the hopes some of these guys will realize we're not all taken in by their BS, but I'm still learning the whole MMT paradigm and am not sure of the "ideal" form of control of the MS.
--successfulbuild
I dunno Tom,
the 60s kids thought they were going to change the world. So today we have pop culture, teenage pregnancy, drug taking and porn. But the rich and powerful are richer and more powerful than ever before, and the US still wages war on pretty much anyone its wants to. People still starve to death in large numbers, people are still downtrodden and impoverished. Yeah change might be a coming but fifty years from now the shits will still be on top. They get there by being shits.
Thus the money supply is largely endogenously determined by the market economy, rather than imposed upon it exogenously...Statistical evidence about the leads and lags between the state-determined compnent of money supply and broad credit show that the latter 'leads' to the former (Kydland and Prescott 1990). If the Austrians were correct, state money creation would instead precede private credit creation. " -- Keen, debunking economics.
What "Austrian" believes that state money MUST precede private credit creation? All Austrians do, in fact, know that "private" banks create fiat funny-money out of nothing. Why couldn't/wouldn't most new funny money come banks? Doesn't it? Even if it didn't in certain circumstances, what does that have to do with Austrian theory?
Just like Mike Norman, Keen has no understanding of or familiarity with Austrian School concepts.
@ Anonymous
No one is more disappointed than me over the squandered opportunity of the Sixties and Seventies generation, who the system managed to co-opt by the Eighties.
That's why this can't be done by changing things around the edges or even reform. We need an overhaul that raises collective consciousness, since collective consciousness is the driver of a nation's social, political and economic characteristics.
This was actually the conclusion of my master's thesis in social and political philosophy about social change. The conclusion was a combination of the teaching of perennial wisdom about exploring the potential of consciousness and actualizing it with Bucky's Fuller's proposal of raising collective consciousness by improving the general level of education and deploying resources through design science to "do more with less."
These were topics that the "kids" debated back then in the grad schools with each other, among interest profs, and also with the many people from all walks of life that were involved in the movement, such as they engineers and scientists that belonged to the World Future Society.
The idea that the Sixties and Seventies was just all just DFH's engaging in free love ("sex, drugs, and rock & roll") was just propaganda.
The problem was that when Vietnam ended and Nixon resigned a lot air was deflated and many people got co-opted or dropped out.
Actually a lot of people dropped out like me, getting involved in continuing and promoting the alternative movement. This morphed into the holistic health movement, the spiritual but not religious movement, the green or environmental movement, etc. These movements are interconnected and now represent alternative lifestyles that have gone mainstream and are resulting in billions of the dollars of GDP. Many fortunes have been made and jobs created in music, media, digital tech, etc., too, that cater to this lifestyle. Now a lot of Occupy art is being created by professionals who have turned their focus to social protest, just like their counterparts did back then.
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