America's Experiment in Zero-Gravity Finance | James Grant

well good evening I um I thank you Jeff I thank you Ludwig I thank you Lou Rockwell and I thank um uh Joe matarisi for sponsoring me so congratulations to Louis The mises Institute to Ludwig himself and to Lori rothbart and to all of you who support this wonderful organization on this fine and festive occasion so ladies and gentlemen after 50 years on the job that's me 50 years of the job it is a dull journalist who has not stumbled across even one sturdy bankable truth and I think I found mine it is this money is not Humanity's best subject money is not Humanity's best subject maybe our financial genome is missing so for the evidence of this humble conjecture is stamped in the cyclical record for all of us to see and you will recognize it when I tell you as investors we tend to buy high and sell low rather than the other way around as lenders and borrowers we tend to overdo it in a boom and under do it in the predictable succeeding bust and we are pro-cyclical creatures it's just the way we are that's just and we are this way in constitutional monarchies and republics and democracies statism Capital that's just who we are so theorists talk about efficient markets uh they assume rational investors and Costless transactions and prices that instantly incorporate every scrap of available information you might as well talk about efficient romance as efficient markets uh yes there do exist the steely-eyed money makers who build wealth by adapting to circumstances and learning from mistakes they do exist but if the average investor learns from one cycle to the next it's news to me uh for all I can see they that is we keep stepping on the same rakes so the last thing the very last thing our fallible species needs is a monetary system that leads us into temptation yet that is precisely the system in place a dozen years of suppressed interest rates have misdirected money waylaid judgments and turned the switch marked Financial gravity to the off position you've heard and read stories about UFOs no that's not UFO they are stocks and bonds and cryptos and stuff floating in air so um I am going to tell you uh in the four hours given to me this evening I mean tell you about I don't know I'll tell you about interest rates oh my publication is named grants interest rate Observer and I am in Clover because interest rates were barely perceptible but now there's something to watch so um if I seem a little bit manic it's because my business model has been validated so um I am going to my plan is to uh talk about the the source of the zero gravitational environment we live in uh I have touched on the nature of the human material that does the investing I'm going to project or rather suggest to you that the FED is the agent of entrapment uh the interest rates and their absence has been the key to the everything bubble I'm going to touch on the consequences of this experiment I'm going to mention the hypothetical theoretical insolvency of the Federal Reserve let's see what else I am going to delve into the extraordinary losses in financial markets especially bond market losses unseen in four thousand years and uh I'm going to propose a solution to these difficulties yeah I think nothing of it madam all right so um uh you know an interest rate uh is a price it's uh most think of it as the price of a loan and it is that but it is more to borrow from the title of a new book by Edward Chancellor interest rate is the price of time the price of time so Jeff Bezos knew something about the human condition when he created Amazon Prime what he was banking on was the people's impatience their impetuosity when we want something we want it now Murray rothbard described this condition in a few short well chosen words and they were this so future satisfactions are always at a discount compared to present satisfactions so you pay less for something that's promised than something you possess so you hear it said that the rate of interest discounts expected future cash loans we all say yes yeah quite true right but the words are somewhat uh uh opaque so what does that mean it means that interest rates connect the future with the present they adjust an Investor's expectation of the timing of tomorrow's Rewards so very low rates of Interest seem to real those nuggets into the present foreign rates of Interest seem rather to push them further out over the horizon so imagine you are minding your business when your financial planner calls and he says I have a stock for you the stock is called Uber some years ago and Uber is going to revolutionize the taxicab business and uh and you are happen to be a student of Graham and Dodd and a value investing you say wow what might this company called Uber be earning well in terms of sales were nothing just yet but you wait in the fullness of time it's going to uh earn the profits that it's uh it's foresight and it's vision have gifted it that's what the salesman will say now you have a choice you can invest in that future promise or you can take the Here and Now if the Here and Now is priced at nothing has to say a zero percent interest rate you might be inclined to LEAP as a chance of getting in on the ground floor of a great thing that's going to happen says he but if the present day is offering you say 10 percent on a treasury bill you might be inclined to hang up the phone so that's that is the that's what we mean by we say when this interest rates at discount future discount future cash flows uh they calibrate our expectations about the future they if they're low enough they kind of they subsidize fantasy right where do you think this great levitation in tech stocks came from well it came in one in one way from the the objective Improvement uh of Technology of human Ingenuity that was one source of the levitation of tech stocks but another source was the lack of competition in the Here and Now when interest rates are pitched at nothing uh the future looks Everest so glistening so um interest rates they are a thing as I mentioned and that thing is a very potent Force the book that you have perhaps not spent much time with by your bedside is called the uh the history of interest rates by Sydney Homer and Richard Cilla and 2000 BC to the present four thousand years of interest rate history it goes by in a Flash but I will compress that narrative for you in a few in a few words how does well interest rates have never been lower in 4 000 years and they have been in the past dozen um zero percent actually in some respects was a high rate of interest because uh in 2020 as many as 17 trillion dollars worth of fixed income securities were priced to yield in nominal terms not adjusted for anything less than nothing so think about it so you as a lender paid the borrower to accept your currency Swiss Francs Japanese Yen uh Swedish Kroner and so on mostly European but 17 trillion dollars were so remember what Murray Rothbury said he said he said that this would be impossible because future things were always priced lower than present things and don't you remember the theories that respond to explain the extraordinary seemingly inexplicable phenomenon of negative nominal yields people would say yes they are just where they ought to be because central banks are fighting the battle against deflation against everyday low prices which we add poor America spends half of Saturday seeking out the things that Central Bankers want to Stamp Out um but facts are facts 17 trillion is a lot of money even you say it fast and that much money was devoted to paying people to take your money on a loan and um so the question that we at grass always says did interest rates fall or were they pushed is this extraordinary alignment of rates zero slightly more than zero less than zero is this a force of nature is it a is it a turn in the history of financial affairs or is it just another manipulation by the thimble riggers at the Federal Reserve and the European Central Bank and it went on for long enough that many people came to doubt the theory the central banks were behind this but [Music] so how has this worked out this experiments in in extra low interest rates have you been reading the Wall Street Journal in recent years and have you noticed if so have you noticed the uh the line that precedes often that modifies the term treasury bond that the scriptor is super safe the super safe treasury securities well um here is the way that the super safe Securities have comported themselves in the first nine months of this year a long investment grade bonds down 28.4 percent the preceding worst result over 12 months occurred in 1841 when states were defaulting on their debts and that was only 22 percent 22.9 so this was worse than 1841. um in many respects it was the worst in 1228 years and I'm referring now to Long dated indeed perpetual English Sovereign Securities called guilts g-i-l-t-s and British consuls or these perpetuals in the nine months were down 37.4 percent the preceding the the runner-up worst occurred during the Napoleonic Wars when the English Channel was a very very fraught place and the worst of that period 1803 was down 23 so this year through nine months down 37 percent during the Napoleonic War Darkness down 23. so in that case they're worse than 269 years an unprecedented two is the tempo of the rise in bond yields the fall and bond prices bond prices tend to Trend over the course of generations it's a it's a unique feature of the fixed income security um from 1900 to about 1920 Bonnie yields Rose and it took them 20 years to rise about one or two percentage points very very slow rate of rise uh the second a generational occurrence in the rise of interest rates occurred from 1946 to 81. and it took from 1946 1956 for the bond yield to rise one percentage point 10 years one percentage point from Two and a quarter to three and a quarter so by by way of contrast in in August of 2020 uh 10-year treasuries were priced to yield one half of one percent and recently they touched four percent that's a eight-fold up Eightfold in slightly less than two years never before seen so the ferocity of this bear Market uh the speed of the of the decline in price and rise and yield is a new thing under the sun and it um to me it shines a bright light on the on the power of the central banks for ill and on the snapback the power of the Snapback uh to reverse the evident error and monetary policy blow these many years um so this business about about the essential security of government debt I want to treat you to the wisdom of a man named Samuel Seabury who was a Massachusetts judge on the Supreme Master Supreme Court and judge Seabury presided over a case called Harvard College versus Amery and the details of the color of the of the lawsuit were not so very important that concerned the nature of prudence in finance it concerned the nature of the so-called prudent man today we would say a fruit and man or woman uh but in the day it was a prudent man and The Prudent man had to do with you how do you conserve the capital that is entrusted to you as a trustee and Harvard sued a trustee called Amery because he had the temerity and the and the uh uh and the lack of perception to invest in these newfangled Industrial Enterprises rather than in government bonds so here is what judge Seabury said about the nature of risk and about the nature of government Sovereign of sovereign government guarantees and credit um concerning the nature of risk quote it will not do to reject those stocks as unsafe which are in the management of directors whose will or ill directed measures may involve a total loss do what you will the capital is at hazard if the public funds are resorted to What Becomes of the capital when the credit of the government shall be so much impaired as it was in the close of the war of 1812. when the state department could not raise the money to buy stationery and here's what he said since Judge said about the nature of sovereign credit risk it may well be doubted if more confidence should be reposed in the engagements of the public then in the promises and conduct of private corporations which are managed by substantial and prudent directors there's one consideration much in favor of investing in the stock of private corporations they are amenable to the law the holder May pursue his pursue his legal remedies and compel them or their officers to do justice right Elon Musk but the government can only be supplicated so um again's interest rates and they are back um so I promised you and will now deliver some speculations on the consequences of the manipulation and suppression of the of the pro of the price of time um well you know some of them are quite obvious the big draw down in the prices of of equities especially those listed in the NASDAQ exchange tech stocks have taken a great big beating um uh bond market losses you know about what is less remarked upon are the unseen disturbances that interest rates so so these Long Level rates have induced in what the Austrian economists call the structure of project production and um this has to do with the uh well it has to do with in a way with hurricanes so uh there's a Hurricane Andrew which preceded the devastating end and this was in the mid 80s I guess Hurricane Andrew was uh the long time coming and very ferocious when he or it arrived and them in fact so long had the interval been before the between the the between uh the the preceding bad hurricane and Andrew the building codes had been gone had gone slack and Builders had become a little bit inattentive to the details of their craft and the losses dealt by Andrew for that reason were extraordinarily were extra extraordinarily devastating because the world had become accustomed to the absence of truly horrific storms and much the same thing I think pertains in the realm of Finance the muscle memory is a powerful force I think a much underrated force in finance interest rates until uh two years ago had been falling for 41 or so years 41 years you had to have had a one and a half Wall Street careers to have lived through and navigated a bear Market in bonds meeting a time of rising interest rates the 12 years following the um financial crisis of 2007-9 we're time of very low rates and very easy credit and a time of great opportunity for the promoters of what used to be called Leverage buyouts but now have been rebranded owing to the difficulties of lbos as private equity and something like three trillion dollars worth and we have exactly a three trillion dollars worth of private Equity 3 trillion or so a venture capital has come into the world Securities that are not quoted on public exchanges but they're coming has been facilitated by these same zero rates so if you're a venture capitalist uh what you hope and expect is the stock market will be prepared to buy your um uh unicorn at a properly fancy multiple when the time comes to launch it into the world now similarly with private Equity you buy a company you borrow money with the proceeds of those borrowings you pay the stockholders of the company that you are buying and with the extra proceeds that you have borrowed you pay yourself a big dividend now in so borrowing the money and so leveraging the company you are betting on smooth sailing in the macro world and you are betting on as are the Venture capitalists with an opportunity to exit in the public markets but what happens if an unscripted inflation arrives what happens if that unscripted inflation loosens the grip of the central Bankers on the interest rates they have suppressed and the public markets are no longer welcoming well we are looking at just that set of risks in a not small segment of the national economy now um [Music] until fairly recently the Fed was talking about a so-called soft Landing meaning that it artfully would would raise the rates of interest and controls just enough to uh to crimp demand Supply Chains would snap back into operation and before you know it we would resettle into the Realms of two percent inflation and satisfactory growth and we would live happily and profitably thereafter [Music] um I thought then and I think now the degree of difficulty in the soft Landing can be compared to that of the fraternity initiation trick um Jeffries will you please stand for a second and help me with this uh please Dad Jeff yep and get a grip on the tablecloth yeah see the trick is is to is to pull if you go to if you go to wikiHow you'll see that the uh the trick is to pull it straight down and you must be decisive and wikiHow also suggests for novice practitioners that you use for plastic plate wear and uh but but we can't do that in this economy we are stuck with uh with Crystal and with silver and with bull market champagne flutes and the FED unaccustomed as it is to this particular difficult trick is going to yank straight toward itself and the sound you hear may just prove to be the shattering of the aforementioned Crystal now I hear myself verging into dogmatism with so many birthday candles have I blown out I am not going to predict that I'm going to keep open-minded especially before this August company and only propound the idea that the consequences of suppressed interest rates are both seen and registered and unseen and latent but the latent ones are the ones you have to watch out for one could observe apropos this evening's change of setting but climate is what you expect but weather is what you get so up until early this year as the title of my force that I talk suggests nearly everything was seemed to be floating in air and we seem to have lost gravitational force um you know the public debt bulged and credit creation accelerated and asset prices became disconnected not only from the Touchstone of value but also in some cases seemingly from reason itself it was only last year ladies and gentlemen about this time is suddenly called ether Rock number 42 went on the auction block now ether rock is number 42. is a non-fungible token now even with the four hours given to me I haven't got time to explain whether or not but think of it as a digital Beanie Baby it is a collector's item by Ether Rock number 42 was a digital image of um of a rock you know and uh if you were driving in from the Phoenix Airport you looked at these outcroppings of of maces or rocks and I looked I mean I I couldn't I thought of ether Rock number 42. which a year ago commanded a price at auction equivalent to 1 million three hundred and thirty thousand dollars now mind you um this was not something for you to own you the buyer didn't own it uh you've got bragging rights on the world on the uh on the blockchain to say that uh you bought it but the Detachment of investing from ownership I took and still take is kind of a disturbing Trend I mean it's it's not really capitalism right something else it is I don't know it's a fancy isn't it and it's a fancy um that could be traced I do trace it to the absence of gravity the absence of interest rates the zero price of time so that 1.33 million dollar investment in the thing you can't own that um is down um 90 from that price to date it was last Autumn two in the price of Shibu Inu which is a cryptocurrency and again time constrains me from explaining exactly why people buy things they can't see for money they possess for the hope of that thing appreciating on the thing that they can't touch but they do and three trillion dollars did a lot of talking in the day if you are a Libertarian let us say hypothetically you're inclined to trust the the judgments of individuals that come together and discover something in price right you can't you can't scoff at them even if you're shall we say a baby Booter of a certain age you really shouldn't but I couldn't help myself this Shibu Inu is a is a it's a satire of Dogecoin which itself was a send-up of Bitcoin it's like yesterday's canceled flight to the Newark airport with the judge would be that canceled one there's a delay of the other and the delay of the third on the delay so Shibu Inu last year October of this registered a gain of one thousand percent no no that was just in October because Elon Musk said he liked it a little bit before he didn't like it much so that Sprint to the upside in October brought the year-to-date gain to an even 40 million percent of course that's before tax well at least one could lay ownership the claimed the ownership of this immaterial monetary unit that bears the image of a cute little Japanese hunting dog and for nonsense enjoy the sponsorship of the fickle CEO of Tesla um so here's what our little journalistic Lemonade Stand grants said a year ago I quote with neither the discipline of a gold standard nor the coherence of Market determined rates of Interest we investors operate Interstate resembling zero gravity where nothing is anchored and things that aren't nailed down go up so perhaps the zero gravity phase of American finances over or ending you know about ether 42 it was down at 90 percent uh Shibu Inu was given up 67 percent of its peak value and um you know the uh the not so amusing results in stocks and bonds are not quite so grim but the standard 60 percent stock 40 percent Bond Schwab branded retirement portfolio um has suffered unusual drawdowns this year of course in the Years not over they might recover and they might not but um they are down are these portfolios as much as the worst of the same portfolio that would have been down in the some years in the 1930s um so um there are other consequences of this bizarre cycle of interest rate suppression and the uh this beach ball as it were is held under the surface of the water now is bobbing up bouncing up other consequences one of these things is that is the um is is the kind is the hypothetical theoretical insolvency of the Federal Reserve System now I choose my words carefully I say hypothetical because it's it it if a certain set of rules were not in place it would be true but it's not exactly true and theoretical because in theory one's Capital ought to be in excess of one's losses and but to the fed him uh through June had suffered a markdown in it's uh is it's a net worth of a substantial amount it was down in the mark to Market because the FED owns many trillions of dollars worth of fixed income securities which of course as you know now has taken a big loss this year and um the FED only holds 41.9 billion in capital so the ratio of assets to Capital at the FED is well over 100 times to 200 times I guess so the FED is not exactly leading from the front with respect to safety and soundness in the banking system it the New York fed is the most leveraged for the National Institution in New York City um but the Curious Thing is um is what the the feds kind of slipped into its financial statements in the first week of 2011 January 2011. it was a little recondite note and the balance sheet the footnotes the balance sheet saying that here from now on uh losses if any born in the income statement will be in effect journaled through uh in a contra asset and will be deferred and the treasury will backstop it so what the FED is doing it's has suffered a drawdown in the value of its fixed income securities in excess of 700 billion dollars it has 41.9 billion in capital it is hypothetically theoretically broke except those losses are treated on its balance sheet as a deferred asset which the treasury in the fullness of time will make good and the fed's not the only Central Bank in the world with this particular striking set of financials The Reserve Bank of Australia is similarly looking at negative net worth on the same basis ditto the bank of England and as the news of the bank of England's difficulties difficulties to pound unrealed in the past 10 days I thought to myself that here here is a demonstration of the inherent vulnerability and indeed I submit to you the absurdity of the Fiat standard carried to its nth degree of intervention so way back when in Gold Standard days the pound was four hundred four dollars and what 87 cents to the dollar um the Central Bank of Britain the bank of England was a private institution earning a profit that became nationalized in 1946 but in the Heyday of the gold standard the bank of England was a private Institute so we now have is is a central bank that is the property of the state that still talks about its independence from the treasury the British treasury although its solvency is in the hands of the treasury and the pound is a dollar in small change and the bank is applies to intervene in the guilt Market in the public debt Market of Britain to bail out a pension system that was leveraged to the hilt to try to compensate somehow for the for the long-level interest rates that the bank of England in concert with the European Central Bank and the Federal Reserve had been posed in the world so it's a you know it's a it's a thing it's a scrape and one thinks if one is an old-fashioned liberal a Libertarian of a certain stripe I I sometimes um wonder if I am not being overly nostalgic and thinking about the gold standard I I think I know it's there are there are no people proof monetary regimes as we all know um but you know I I I wouldn't mind the return of the Brooklyn Dodgers to Brooklyn I wouldn't mind if Count Basie were up in the stage of Birdland I would not mind if Murray rothbard were Among Us not at all Nostalgia must be the least repaying line of thought or musing on Wall Street it won't do one can't be nostalgic for the past it's about the future and there is something on the face of things anachronistic about a monetary standard that resolves and devolves other the digging of something material from the Earth and refining that thing and sending it off to be storing it doesn't sound like the 21st century does it there's something undeniably anachronistic about it given the world's preoccupation with monetary assets so-called you can't see or touch or own and yet is the very tangibility of money which in the day sustained the value of money and the structure of credit anachronisms I was 20 years old and I got a job just out of the Navy got a job in Wall Street and I I was a clerk in a bond desk and um and I was laid off in 1968. because Wall Street could not process the business that it was doing at the New York Stock Exchange 15 million shares a day and the Stock Exchange closed down on Wednesday afternoons to sort out trades extraordinary the United States land on the moon one year later so they say but here was this here was this this paper this landfill they called Wall Street and I lost my job 78 dollars a week and was founded uh in consequence of the Scandal administrative botching on walls was found in something called the depository uh Clearing Corporation laboratory trust and clear Incorporation dtcc and dtcc came into the world to facilitate the rapid and efficient administration of financial flows and has it ever succeeded Wall Street could not process 15 million shares a day uh now the dtcc does 200 million plus over the 12 months of 2021 at settled Securities transactions and the grand sum of 152 trillion dollars I see a trillion um and um oh that number was quadrillion your quadrillionism it is one thousand trillion trillions billions so a trillion yeah so that we're doing trillions now many trillions of Securities process so that speaks a little bit does it not to the financialization of things there's a wonderful phrase that a friend of mine uh said that the the optimization of the economy with regard to finance and asset prices the optimization of the economy with regard and that a little bit to me evokes the central problem of 4 000 year low in rates of persistent intervention in markets um and and I wonder if our finances were not grounded we're not we're not uh hauled back into the reality of tangible things if there were not something like um an element of the periodic table of the elements that Define the value of money that could support a superstructural Critic this would not be a step forward and not an anachronism well I have asked the kind of question that um uh the speaker asked when he wants you to know that he has the answer the answer is yes um but we really must do something about this institution this Federal Reserve I um Ron Paul has convinced me of this I and I have been thinking about I think I have a couple of answers but first of all I want to I want to remind you of the sheer willful ignorance of the phds at the feather 800 of these creatures who have earned the doctor in economics and I will deal with them in a moment but first I we were talking about our table at the St Louis Cardinals apparently there's a church in St Louis having to do with a baseball team and um and I want to recall to you a story from 1968 Bob Gibson's great year that speaks exactly to the Federal Reserve lest you get impatient with the telling here it is all right so this is great Bob Gibson the imperious powerful picture of the St Louis Cardinals going to win 20 odd games he mad because he lost three or something he and there's an infield named ducky Scofield utility and field good glove no stick lifetime batting average 227. that's ducky so ducky was a bat and uh and as was his what he strikes out so he slams down his Bat uh the same with his batting helmet comes back to the bench and breaks the water cooler cusses up a Blue Streak Gibson can't stand it summons him over to hear what he Bob Gibson has to tell him ducky Scofield so ducky goes over and Gibson says that pointing to his batting average he says ducky he says to him what did you expect what did you expect so Federal Reserve when you um uh when you uh subsidized consumption when you shut down production and when you gun the money supply what would you expect so that's inflation so what we need to do ladies and gentlemen let us say that the dawn of a new gold standard is uh for tomorrow rather than today what do we do in the meantime so as I say I've given this some thought I've got a couple of things I would like to propose to you one is the uh this uh the shambles they call the balance sheet the FED I mean it will not do that 41.9 billion supports 9 trillion in depreciating assets this will not do so how about ladies and gentlemen If the Fed were encouraged to conform its Financial practices to the rules and regulations laid down by the bank examiners themselves at the fed and at the Basel record in Switzerland how about If the Fed had to uh had to tow the more on regulatory standards that it itself imposes on other Banks it would be unable to implement quantitative easing so-called so that's uh if uh if if I submit this to Rand Paul by Iran so let's get the FED on board with a little bit of solvency and my other suggestion for the Improvement of our finances and uh is um is that there ought to be a department of Common Sense I know it's crazy but so I I envisioned this [Music] um um as an office with direct access to the Chairman's office just down the hall and um the Personnel would uh comprise I don't know um maybe you can help me with I I'd say first of all a stay-at-home mother who knows what things cost and who is not going to buy a transitory if it goes on for a year and a half there might be a financial historian I myself am engaged but there might be someone who is available for this job and I don't know if I'm a business owner or somebody from this I think somebody from this audience might round it up and the department of Common Sense would have veto power over the pronouncements of the Board of Governors that's my suggestion for me thank you that's the thought so I I think ladies and gentlemen I am something tells me I think my New York time zone tells me that my four hours are complete um and uh but I have um uh so at a a grants conference many years ago T Boone Pickens you have a talk and he gets up just lasagna so he's getting something that he says that well you know I I haven't uh he had 40 minutes 40 4-0 he says uh I haven't really prepared anything and uh uh I'm not very good at uh this kind of thing um so I am the sponsor of this event and I'm wondering what have we filled the other 38 and a half minutes and uh is were there any questions and uh it carried through very nicely so I promised the authorities at mises that if you were of a mind I would stand for a couple of quiet not that I had the answers but I would certainly welcome them so if you do uh um I will entertaining if not I'm going to go and sit right over there and nurse my wine so your call is you know I'd be happy to accommodate you all right so don't let me drink that one thank you thank you I wanted to know what you made of the Bible Administration I'm against it [Applause] um not not quite threatening but almost threatening the OPEC uh with their deep dissatisfaction with their decision to cut two million barrels a day of production and what what possible good outcomes could could occur well I think no good outcome I think that the innocent maybe the administration was trying to save face by saying something you know some of the insults you you don't want to necessarily walk away without saying so is your old man maybe that was the point of it um but this is really not my subject I mean I I I I we all know that um if the body administration were truly concerned about the mission of greenhouse gases it would not offshore fossil fuel production it would simply invite us to make do with our sweaters right that's that would be the principled cause but they are not concerned with that hence they want others to emit those gases so I think it is less than less than noble for us to be following this and we have all the uh let's say there's a famous story about uh Guadalcanal during the very Darkest Days of the after the invasion and um and there wasn't then wasn't much to eat and the commanding officer told the Marine there's plenty of child on this island you find it there's plenty of oil and gas in this country and we have found it right so again this is not my subject but that's my take a that jubilees well it's no longer a theory is it so uh well you know it's it's not a new thing um uh there is a Biblical precedent and there is uh American president um James Madison found it necessary to denounce that Jubilee is in one of the Federalist Papers called The Wicked projects and he linked debt jubilees with paper money so uh what is new now is the um I guess the pending or a contingent precedent of wide scale forgiveness of student debts and once you get into a bidding contest for that of course it's hard to tell where it ends so this speaks I think to Samuel um uh kind of Peabody but Samuel what was it Joe Biden I just read Julie Harvard versus Amory Seabright Samuel seaberg um uh take on the nature of Public Credit and is it necessarily so Superior and um you know as Adam Smith said approximately these words there's a whole lot of Ruin in a nation and I you know I began at Grants we began producing uh prospectuses on the on the financial condition of the United States in the 1980s when if you recall Ronald Reagan got up and I think gave a TV address on the occasion of the public debt Crossing the billion dollar was it the trillion dollar market the first time in 1981 I think that was it and he said this is all you have to have to know trillion dollars well now it's was it 31 today so I would say that this is the United States is now a split rated investment grade Enterprise it is uh it is Triple A Double A Plus and uh uh this business with the student loans I think is very disturbing for the Public Credit and the whole the whole phrase the Integrity of the Public Credit is never heard and I think that that stems this indiffer seeming indifference to the Public Credit the strength of the Public Credit uh stems from the many years in which anyone who worried about it simply missed a great Bond rally you know under Reagan um the public debt tripled and interest rates were chopped in half so he needn't have given that that talk because it was going to be fine right and it's still fine a little bit in that the United States dollar the embarrassment of the dollar is not its weakness but its strength that's the the cause of the anxiety the world is rallying to it it's better than the Japanese Yen whose Central Bank is still more aggressively interventionist than who whose idea of interest rate suppression is still more radical and and unbending uh so you know but um so I I would I would call this uh just another example of the of the of the kind of the termites in the house of Public Credit you can hear them chomping a little bit but the house is still standing you know hey people to find out they don't own anything right oh they don't yeah they didn't seem to mind not owning nfts while they were going up Jim is the Euro going to survive I'm sorry second is the Euro going to survive no and wait wait I mean no paper currency survives right none ever has I mean the dollar the dollar is Extant um it's down 99.6 you know it's it's one of these functions where the rabbit hops ever closer to the wall and then uh um but all these currencies lose their their value the British pound is of course are laughing you know so it's derisory compared to it's it's part it's power value of yesteryear and the euro is certainly I would say certainly that sounds also like dogmatism I would say probably is um is is is tracing a speedier path to extinction because of the of the the of the political organization of the of the European Union so I I'd say that and you know um the PHD standard under a social democracy I think you know it's just it's not gonna it's not it's not a place that uh that you a prudent person would pit put his or her money for a store value I would say all right thank you [Applause] [Music] [Applause]

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Length: 55min 3sec (3303 seconds)

Published: Wed Oct 12 2022