LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com to Launch New Website
By: GoldSeek.com

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target – Here’s What to Expect…
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA

 
Search

GoldSeek Web

 
Why Jim Grant Thinks It's Time to Abolish the Fed

By: Rick Ackerman, Rick's Picks

 -- Published: Thursday, 23 May 2019 | Print  | Disqus 

[Jim Grant is an old-school observer of this economic age and one of its most brilliant commentators. Following is the speech he gave in accepting the 2019 Bradley Prize, which recognizes those who have helped further the principles and institutions of American exceptionalism. RA]

Ladies and gentlemen, it’s a blemish on the age that so many of us know the name of the Federal Reserve chairman. In a better world, that government functionary would be as obscure as what’s-his-name, the home plate umpire who got no arguments calling balls and strikes at Yankee Stadium the other night. Who elected the Greenspans, Bernankes, and Powells to be the arbiters of interest rates, asset prices, the rate of inflation and who knows what else? It wasn’t Alexander Hamilton. Nor was it the Fed’s own founders. If the authors of the 1913 Federal Reserve Act could return to earth to inspect their handiwork, the shock might kill them all over again.

Congress envisioned an institution to function in the context of the international gold standard. This meant a dollar defined as a fixed weight of gold. You should have heard old Carter Glass, the congressional father of the Fed, berate the critics who dared to suggest that he was scheming to replace the gold dollar with a scrap of green paper. Well, Glass himself is to blame for much of the evil that followed. The legislative preamble to the act that Woodrow Wilson signed describes a bill “to furnish an elastic currency, to afford means of discounting commercial paper, to establish a more effective supervision of banking in the United States-and for other purposes.”

Financing Wars

These other purposes quickly became the principal ones. No sooner did America enter the Great War than the Fed lent a hand to facilitate the government’s borrowing. By the time the system celebrated its 30th birthday, in 1943, the central bank was pegging interest rates to suppress the costs of financing an even greater war. Jump ahead another generation. In 1971, the dollar became the un-collateralized piece of paper that Glass denied it would ever be. Thus did discretionary monetary management by former tenured economics faculty become the Fed’s new operating technique. The gold standard was out. The Ph.D. standard was in. Unconstrained by gold, the Fed intervened to clean up after the 1998 failure of Long-Term Capital Management. To ameliorate the 2000 dot-com bust, it pressed down its policy interest rate to 1%. To put out the fires of 2008, it pressed that rate to zero – and held it there for years.

Would Hamilton have been shocked by these radical measures? No more so than John Paul Jones would be at the sight of the USS Ronald Reagan, apologists contend. Ancestor worship is a poor substitute for progress, they say. Science, though, is one thing, finance another. In science, progress is cumulative – we stand on the shoulders of giants. In finance, progress is cyclical – we keep stepping on the same rake.  It’s not because we never learn. We do learn. We learn to respond to incentives – to the Federal Reserve’s now predictable interventions to support the stock market, for one. And to the opportunities afforded by persistently low interest rates, for another.

No Protest from Wall Street

Interest rates are probably the most sensitive and consequential prices in capitalism. They balance savings and investment, discount future cash flows, define investment hurdle rates, measure financial risk. Yet the Fed and its foreign counterparts seek to manipulate or, at least, to influence, interest rates both long-term and short-. They can’t seem to keep their hands off them. Wall Street raises no protest against these intrusions. The artificially low rates of the past 10 years have advantaged investors, speculators and corporate promoters. They have deadened the risk sensors of even professional investors. They are 80-proof financial disinhibitors.

The same low rates-by some measures, the lowest in 3,000 years-have penalized savers, incentivized dubious risk-taking, expedited the growth in federal indebtedness, and perpetuated the lives of businesses that would have failed in the absence of easy credit. They have widened the gulf between rich and poor, thrown a spanner into our politics and inflated the cost of retirement.

Trump ‘Righter Than He Knew’

In 2016, then candidate Trump complained about an “artificial stock market” and a “false economy,” blaming each on the legacy of the Fed’s near-zero percent interest rates. And just because he subsequently hired a new speech writer doesn’t mean he was wrong. He was, indeed, righter than he knew. The trouble is that the costs of radical monetary policy are dark and prospective; the gifts they bestow are bright and immediate. Those gifts are likewise transitory. Over-encumbered businesses finally fail, inflated asset prices ultimately revert to lower, more reasonable levels. The dividends and the yields that income-needy people have stretched sadly prove illusory. New federal regulations follow hard on the Congressional hearings called to ventilate society’s rage at the bankers – not the central bankers, mind you – who brought down the chaos.

What’s to be done?

An overhaul of the Ph.D. standard, for starters. The 700 doctors of economics on the Fed’s payroll seem not to understand the limitations of economic modeling or the relevance of the financial past. Send them to NASA, which is where they wanted to work in the first place. Replace them with a half dozen historians, a couple of philosophers and a physician. The historians would study the recurring patterns of economic and financial affairs, the philosophers would contemplate the true nature of money and the physician would repeat at intervals, “First do no harm.”

Hormone-Free Rates

As to interest rates, the new and enlightened Federal Reserve would adopt the policy endorsed long ago by the central banker who pleaded, “Don’t give me a low rate. Give me a true rate, and then I shall know how to keep my house in order.” The Fed would cast this regime change in language calculated to appeal to the environmentally conscious younger generation. What we need, the new brooms at the central bank would say, are rates discovered in the market, not imposed from on high. In other words, green interest rates. Unprocessed, unpasteurized, un-fluoridated interest rates. Cage-free, cruelty-free, hormone-free, antibiotic-free, gluten-free, grass-fed, heart-healthy, probiotic, non-GMO, non-dairy, free-range, all-natural, sustainable, organic, farm-to-table interest rates. Not necessarily higher rates. Not necessarily lower rates. But, certainly, truer rates. Ladies and gentlemen: Free interest rates

Start a free two-week trial subscription by clicking here. Make the Coffee House chat room your first stop. There you will meet some of the best-informed crypto fanatics in the trading world.


| Digg This Article
 -- Published: Thursday, 23 May 2019 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.