Submitted by Taps Coogan on the 15th of October 2019 to The Sounding Line.

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Grant’s Interest Rate Observer founder and editor, Jim Grant, recently spoke with Stansberry Research about the true cause of the dollar funding problems that have emerged in the US financial system. Specifically, Mr. Grant believes that excessive bond issuance caused by swelling federal deficits is the true problem of funding pressures, not insufficient liquidity.

 

Some excerpts from Jim Grant:

“People talk about the absence of liquidity, and liquidity means basically money, it means the capacity to transact in securities at more or less continuous prices. So they say ‘There is not enough liquidity. Can’t the Fed do something?’ Maybe the Treasury is doing too much. Maybe the problem is not the lack of so-called liquidity from the point of view of the money hose. Maybe the problem is too many bonds to be financed… The demand for overnight financing strikes me as not necessarily a function of the paucity of liquidity but rather as an excess of… collateral, meaning bills. notes, bonds of the United States government. We are running trillion dollar deficits at a time of supposedly high macro-economic cotton.”

“What we have had in these past ten years is more and more intervention to perpetuate more and more excess… especially in the world’s credit markets. $15 trillion of securities prices to yield less than nothing is not a sign of ready good health.”

The Fed is now venturing to print money to monetize federal deficits which have become too big for the economy to finance on its own. Consciously or not, runaway federal spending is now driving monetary policy.

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