Taps Coogan – March 5th, 2021

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Grant’s Interest Rate Observer founder and editor, Jim Grant, recently spoke with WealthTrack’s Consuelo Mack to describe what the Fed was actually designed to do back at its inception, how its mission has been perverted, and why he believes inflation is coming.

 

Specifically, Mr. Grant reminds listeners that the Fed was created to bridge short term liquidity needs originating from the seasonality of the agricultural economy it was born into and to serve as a lender of last resort during bank runs. 

Of course, long gone are the days when the Fed views its role as such. The Fed has bestowed upon itself the responsibility of saving the global economy from whatever price action it doesn’t like. He notes:

“The Fed has appointed itself the First Vice President of Everything. It is astounding to me that we know so much about Jerome Powell. This is the umpire at a baseball game getting his picture splashed on People Magazine’s cover. Huh? What about the players?”

“(The Fed) is too much with us. It’s powers are too great. They are exercised too frequently and it has left us with a bond market that has all but been destroyed with respects to the proper functioning of a bond market, which is to set interest rates, to appraise credit, and to extend credit on terms that are logical and vetted by participants in the market… It’s not everyday that you get 4,000 year lows in rates…”

With regard to which financial bubbles are the frothiest, in addition to “everything,” he notes:

“Tesla is the bitcoin of car manufacturers and Bitcoin is the Tesla on monetary gimmicks… Are you sure you want something that is based on someone being even more optimistic than you? Is that really the way forward…? Bitcoin is the Emperor August Tulip Bulb of this particular craze and when… greed turns to gravity you are not going to get out… There really is no telling how high something like this can go, but when it stops going up, it’s going to come down hard.”

One circle I always have a hard time squaring is how we are going to get inflation at the same time as the most deflationary force in the universe befalls us: popping a financial asset bubble in a debt laden economy.

If there is a way, you can be sure that the Fed will find it. 

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