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Jim Grant On Gold-Backed Bonds And 'The Hope Leeches'
James Grant, of Grant's Interest Rate Observer makes some thought-provoking statements in his must-listen Bloomberg Radio interview with Tom Keene today. While noting America's exceptionalism (h/t Clint Eastwood?), he perhaps doesn't mean all Americans as he takes the Fed and Treasury to task over their actions in recent years (and in fact for decades). His long-held view that rates should be higher and follow generational cycles raises concerns for him that government intervention is in fact 'prolonging the symptoms' of the recession. In considering Tom Keene's well-thought-out question of why the US does not take advantage of low rates and issue exceptionally long-dated bonds, Grant agrees with the odd premise that they do not but then goes on to what would be sounder policy. "Why not issue bonds backed by gold bullion? Gold is a better money and is grounded in something besides the power of the people that print the dollar bills." The interview goes on to discuss population growth as a more potent 'fix' for housing in the US than QE, that the US is a preferable investment environment (given valuations) than Germany or Japan, the drastic drop in NYSE volumes, and the "leeching out of excitement, hope, and expectation of improvement (particularly for the young)." His compare and contrast of the 1920-21 depression to the current Great Recession (which seems not to end), focused on the fiscal and monetary actions, is an eye opener that its just possible the present-day orthodoxy is wrong. Urging that we maintain our sense of shock at the size of our 'peacetime' deficits, Grant worries that we are in a secular stagnation.
Click below to listen to the interview...
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"Why not issue bonds backed by gold bullion? Gold is a better money and is grounded in something besides the power of the people that print the dollar bills."
Better yet, why doesn't Greece do this? Does anyone believe China wouldn't finance a partially gold-backed Greek bond?
Because if they do the dominos will fall faster on the outstanding funny-munny and shunt to endgame way before the rats have gotten off the boat.
Gold backed bonds? this guy must be a terrorist. call the FBI!
I just wonder how many milliseconds it would take for the dollar to go bidless after such an announcement?
Back by paper gold?
I was waiting for Grant to point out that the Austrians have long held that the only difference between 1921 and 1930's / Great Depression was the activist policy response, and were saying the same thing in 2000-2002 when Greespan's activism sowed the seeds of the next crisis. One crisis of mal-investment was allowed to clear, the other was frozen to avoid political pain at a variety of levels. (And BS on those who say Hoover was a liquidationist... His policies were clearly not, what -- with all the price support policies, etc. He was, at best, FDR-lite.)
Read Rothbard's "The American Great Depression" -- for free on .pdf if you google it.
These self-serving meddlers and the riff raff who follow them make the mistake of believing the good times were actually good times, rather than gross distortions in the market place that would inevitably implode.
Also, these cycles of intervention-to-bust were predicted to get shorter and shorter as the efficacy of policy intervention undermined the legitimate wealth producing economy. And so it is that a cycle might last 20 years, now it's 3-4, and growing shorter. This current boomlet is on borrowed time.
How about 2 systems? One system for the debtor in all of us...we get our mortgage in fiat and we love it as it gets easier to pay off as time (and inflation ) work their magic. We save in gold (as the most flexible example) and our pile remains the same over the decades until we redeploy it for our retirement.....perfect...see?
And you'll nevr guess what appeared just before the Weimar collapse, yup, gold backed bonds.
What goes around comes around...
Wait a second, you speak as if this would be a bad thing. Sounds to me like this is exactly what the savers, innovators and producers of real things of value are waiting for anyway. fucking bring it.
Once again, that is why it won't happen.
Because they see no reason to.... The EU continues to bail them out every time they wave their hand- Greece is confident that they're holding all the cards in this game, and so far, they've been right.
Why act when there are no consequences? Why give up tangible assets when you don't have to?
They do not bail out Greece.
They bail out the bankster around the globe via Greece!
+1 Exactly - this whole "we're saving Greece" meme is the deception.
Can someone explain this metaphor of "hope leeches"? It is hard for me to grasp without an example or image or number.
Did you listen to the interview? The shitty situation is doing the leeching, not the hope.
Transcription error. Should have been "hope leaches out", not "leeches" as in creepy things that stick on your leg in a stagnant pond.
If this is the case, they will make sure that Greece goes bankrupt to Hoard the fucking gold!
Gold Standard is the thing needed, not bonds backed with gold. although it can work if the country has a sound financial system.
China would then have access to that gold through inevitable default. Greek gold is something the EU already have in their scopes.
Don't worry, they can share it........I'm sure it will be rehypothalamusicated.
Governments never give up their national treasures in an effort to avoid bankruptcy. Especially gold. Read the book, "It's Different this Time". The things of greatest value are kept at all costs.
Besides, Greece's gold reserve at today's gold price is a tiny fraction of the debt they would have to issue. By asking the question it shows you do not understand the magnitude of the problem. Greece is beyond insolvent. There is no chance of them paying their debts.
Because the banksters want to lien (take) the gold on their own terms to cover their own empty vaults?
Only when they've covered themselves as much as possible will they take action to openly acknowledge that gold is the ultimate store of value.
To GeneMarchbanks: "Why not issue bonds backed by gold bullion? Gold is a better money and is grounded in something besides the power of the people that print the dollar bills."
Here is the reason that is not done: It would be to the benefit of such nations and to the people of those nations. The goal is not to benefit them, but to destroy them.
It's geo-political I agree. Greek people do not get to pick either their economic policy or if need be, their creditors.
I would only bankroll them Greeks if they pledged me their gold 2X face of bond. In return i would agree not to rehypthecate it to MFG-UK
First of all, because if they did that, everyone knows they would be buying tungsten-backed bonds. Secondly, it's a tacit admission that the USD is worthless paper.
Depression. Other than that, I have no concerns
Another one who says 'rates must be higher'....well YEA Einstein, 0% is total BS we all know that, but as soon as they raised rates the DOW and everything else would be right back to the lows. 'Bonds backed by gold bullion'? What gold bullion is he talking about? There is no adjusting a few knobs here and there, theres only 1 way out of this and thats complete destruction of the financial world banking system.
They can NEVER raise rates again (at least not until after the entire system collapses) because the only way the current debt and deficit numbers can even pretend to be sustainable is if the interest burden is near 0. Raise rates and the crisis goes from 'looming' to 'immediate' instantly.
What's funny is that Grant has to know that. He has to know that allowing interest rates to normalize would explode the costs of servicing the federal debt.
So rates will not be allowed to rise, just as Congress will never pass another budget. The federal govt will stumble along on continuing resolutions until the wheels come off and the financial system resets.
The FBI is going to be after his ass for crazy seditious talk like that. Commie.
Have to wonder if Grant realizes his views on gold just made him a terrorist suspect according to the Dept of Homeland Defense.
"The interview goes on to discuss population growth as a more potent 'fix' for housing in the US than QE..."
Yeah, that's all we need.
Another hundred million or so poor third world peasants.
Good grief, what the hell are these people smoking?!
I would bet these "peasants" you call have more motivation and appreciation than you think.
OK, we solve the housing issue with population growth but how about the follow on problems? Floating more bonds for schools? Police, firemen? We'd incur so many more problems (and taxes) than we'd solve that it is a ridiculous suggestion.
Maybe not so bad if there is work for this additional population.
They have to have a job to pay for the house, no?
If they are all working, paying bills, buying furniture and x-boxes for the kids,
well it's back to high life again.
Issuing muni infrastructue bonds shold be easy.
Yer solution: Old fogies, start linin' up...
...ah because everyone would want the gold backed debt and shun the irredemible U.S. crap. Duh.
Do I really hear Boomers crying about how bad they had/have it? Hahaha... Boohoo...
The US should default on curent debts before issuing Gold backed bonds. The biggest downside to that will be getting General Tso's wink and nod.
No to gold bonds. No to encumbering gold with any more paper. Free gold. Freegold.
Go back to FOFOA and study the freegold concept a lot longer. Freegold allows for the simultaneous circulation of paper currency (for immediate transaction purposes) and gold (for wealth storage purposes).
The point of freegold is that it permits people to defer claims on goods and services in a form that cannot be debased by central bankers.
patience grasshopper your bifurcated spend vs savings mechanism will come but...."Just because it is inevitible does not mean it is imminent" Doug Casey
Bonds backboned with Gold!
I dont trust those knaves with or without gold.
You can't issue bonds based on gold that has never been inventoried. First you have to do a full inventory, with metallurgical analysis, of the bars in Fort Knox. Only then you can issue the bonds.
Nobody will buy bonds backed by tungsten !
If you can't trust the COMEX, why would you trust GOVEX?
someone posted that earlier
by UP Forester
http://www.youtube.com/watch?v=pbxwTgxPzJk
Tungesten Backed Gold
Jim Grant is Ron Paul's pick for Fed Chairman.
And mine as well
This can has been kicked for 96 years now!
The 'Statutory Debt Ceiling', in effect since the 'Second Liberty Bond Act' of 1917.
Since 1940 the debt ceiling has been increased 80 seperate times, 15 times in the past 10 years! Thats an increase about every 6 months on average!
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
-Ludwig von Mises
"There is NO means of avoiding the final collapse..."
This can has now been kicked VERY close to the cliff edge. The next kick and...
They WILL do something like this...after they've exhausted all the other stupid tricks that have no chance of working. Of course when they do get around to doing it the bonds won't be backed by real gold. They will be backed by imaginary gold that no one gets to see or touch. You'll just have to conjure up an image of it in your imagination when you buy the bond. Failed bankrupt kleptocracies don't let their people own gold and they certainly don't let them conduct trade in it. They'll be cool with letting them think they own imaginary gold though. Just don't stop playing the lottery and slot machines America. You're going to hit the big Pay Day any day now. I can feel it. Keep spending all your discretionary income on that instead of coins.
Paper or Physical Gold backing? What good is backing bonds with paper Gold? If the debter defaults and the bond holder can't collect his physical Gold what happens then?
it's another paper chase isn't it?
every lunatic on the globe thinks they've got a solution to the problems, just tamper a bit here, twist a nob there... it's nothing of more substance than rearranging the deckchairs on the Titanic
the real solution, the only solution, is freedom (from Govt intervention)
Let the suckers go bankrupt ..let natural order (the free market) rush back in to clense this rotten to the core economy
Freedom and the Free Market ..you can't beat it
truth is a bitter pill to swallow ZG!
Here is a lackey that old timers trust:
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” – Warren Buffett, Chairman and CEO of Berkshire HAthaway
"After you cut down the last tree, pollute the last lake and kill the last fish, you will find that you CANNOT EAT Munny!"
ZG guy
"I love you man"
"..government intervention is in fact 'prolonging the symptoms' of the recession.."
Prolonging?!! . . . they're digging (furiously)
This is not a time-lag issue. We're deep in debt and these clowns/crooks are digging ever deeper at an ever faster rate... Obumma, Europe and Japan are grave diggers (ie. fuking lunatics)
Stop Paying Your Taxes
Don't Sponsor the Suckers
Oh, population growth? Do tell Mr. Einsteins - i never would have guessed that the underlying drivers of any market or ecosystem are the participants and their intentions and actions - thanks captains obvious.
MORONS like Keene, and others, don't care to look at the 80s miracle, where unemployment in 7 years went from 9.x% in 1982 to 5.0% in March 1989 due to a confluence of policy events and POPULATION growth (baby boomers moving in to the work force). In sum:
1. rise of private equity thanks to relaxed regulation
2. rise of 'junk bonds' as a new form of capital
3. relaxation of tax rates
4. relaxation of corporate regulations
5. growing stock market as baby boomers piled in to 401k's.
Economics is not terribly difficult or Roubini would have been out of work years prior. Populations and the regulations on such persons is a key determinant of market and environment health and opportunity.
Don't throw the term "moron" around too recklessly.
The plunge in unemployment from 1982 to 1989 is a mirror of the explosion of debt at federal, state, and individual levels. I.E., it was demand pulled forward. The 1980's boom was 1% "miracle" and 99% monetary manipulation.
Boomers entering the workforce had little to do with it. The Baby Boom lasted from 1946 to 1964 by most models. Almost all of them were in the workforce before 1982. I'm a second-wave boomer and was already working in 1972.
here here
Something happened after Richard Nixon closed the gold window in 1971. One would have predicted that a purely fiat currency would crumble as they all do but SOMETHING happened. The world was able to buy oil with that 'worthless paper' and so it lived and still lives. Something happened to give the dollar life again.
the Fed ought to pay all bondholders in gold, assuming there is any left in the building. here you take this worthless industrial metal, and in exchange we write off all our debts? after a moment of sheepish glances, the constituents with their gold on one side and the government swindlers on the other, Bernanke gives the signal to start the printing presses again, and rolls out a new batch of fiat currency. suckerrrrrs
I heard him this morning on the radio. I thought he was quite good. usually, it's just a blur of pumpers and hopey-changey optimism. it was refreshing to hear the truth.
so tomorrow the central bank becomes extinct (wishful thinking), there is no central authority to provide discount lending to banks. if you want to lend money, you must create enough capital for business to do it. interest rates become a function of the free market, they are now set competitively by any entity that lends money. what happens next? what are the natural outcomes?
Am I dumb or do others concur with me ... why ever issue bonds? Why not save up until you have the cash and then buy whatever you want? Issuing a bond means everything costs double or triple. Here in California we have issued bonds for everything and guess what? Now we can't sell bonds or build anything because all our cash goes to paying interest.
If we had true money and no bonds they say we'd be in a permanent deflation. DEFLATION IS THE DEVIL!
But we had true money, and very, very, small Federal defecits; and the result was the greatest economic miracle of all time; the greatest benefit for the working classes, the greatest improvement in national wealth, etc. So, we all know what the facts are. In times of real money; ie. most of human history, prices frequently went down, sometimes during periods of increasing prosperity and good employment; there's nothing contradictory here. In the modern world of debt financing and fiat currency deflation is terrifying to the Bond Owning Class; who also happen to be the ruling class; ergo. the propaganda. Class warfare is alive and well. The program as it exists now is designed to save the Bond Owning Class, and screw over the Working Class. That;s all there is to it, really.
There are some capital purchases that it is both economic and moral to spread over time.
It can be argued that anything that is enjoyed over multiple generations (large, commerce-enabling bridges, for instance) should be paid for by all those people rather than the current (or even previous) generations.
The problem with this, of course, is that once the government gets its tentacles into everything, then everything becomes (despite the complete lack of price-discovery), an 'investment'.
"There are some capital purchases that it is both economic and moral to spread over time.
It can be argued that anything that is enjoyed over multiple generations (large, commerce-enabling bridges, for instance) should be paid for by all those people rather than the current (or even previous) generations."
The fact that funds are obtained over time doesn't make it economic or moral. Consider two ways that a bridge can be built:
1. An entrepeneur wants to build a bridge with his own funds as he forecasts it will obtain sufficient revenues, voluntarily paid by future generations. This is economic calculation at work. Because the revenues are raised through voluntary, mutual exchange, it is moral. If the forecast proves to be erroneous, the entrepeneur will be punished with financial losses.
2. A bureaucrat wants to build a bridge using seized funds and plans on seizing additional funds from future generations including the unborn. He will also sell bonds that enter unwilling third parties into slavery. The bureaucrat expects that this will further his career. This isn't economic calculation. It is based on political force and coercion, not economic considerations. This is neither economic nor moral. If the bridge is uneconomical, everyone suffers.
Remember, there is always That Which is Seen and That Which is Not Seen. You see the bridge long after it is built but you don't see what people could have created or built instead - were they allowed a choice.
When you give the power to spend other peoples money to "officials", or burecrats; all hell is let loose from its moorings.
Let's see, happened before in the '30s, the sainted FDR was in charge, "Great Depression" only happened in U.S., yep.
Queue the 1938 Henry Morgenthau lament.
- Ned
THE OTHER NAME FOR BONDS? DEBT.
Would you actually receive gold with these bonds or would it just be tied to the price of gold?
Jim Grant is one of the smartest historians that you can trust for very accurate information.
Those who do not know or understand history are DOOMED! too repeat it!
Grant's is an independent, value oriented and contrary minded journal of the financial markets.
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Try that one.. it leads you to the stuff above.
"Bloomberg Radio interview" ?
Something wrong with Bloomberg Television ?
Grant worries that we are in a secular stagnation.
thats it? he doesnt worry about the end of fiat shortly?
or a catastrophic collapse?
stagnation is really the optimists view...........
If there is one thing that is worse than paper gold, it is paper gold issued by a heavily indebted government.
The US didn't honor the gold and silver certificates that it previously issued. Why would anyone expect them to honor gold bonds?
Ding! Ding! we have a winner; someone is thinking straight. They have no credibility for any rational person who has studied their historical performance; and if you didn't study. Oh, well.
For two reasons, on a national level, sound monetary policy is not engaged in: Those in charge of spending feel free to spend as much as they want to, without responsibility, and can't be stopped, and because the intention of the Fed has nothing to do with the well-being of the nation or the public but is to wage an insidious war of destruction against our nation and ourselves, the main weapon of which is economic in nature.
It is valentines day so I must announce it: I <3 James Grant. His bowtie makes his opinion so venerable.
Luv that name and the Flag too boot! FANTASTIC!
Jimmy Grant or anybody else who thinks Gold-backed bonds wil be backed by metal is living in a fantasy land. People are basically liars and thieves. The only money that exists is gold and silver. Anything else is just a broken promise waiting to happen. If you have no metal, you will have no money soon.
The question he poses is so "Alice in Wonderland"; "Why not issue Gold Backed Bonds, it's better money"; it's difficult to believe anyone doesn't know the answer to this question. The issuer of a Bond will never issue in a better money; if a less good money is available. Does he imagine that the Government is his friend, or something? What an idea. I thumbed up your comment because it's always useful to put the truth out there one more time; there's always the chance it'll start a newbie thinking, what will I have left in my US$ savings account?; and this is socially useful.
Who's to say how much gold the US has. You need an audit for that, which hasn't been done in eons.
I do not lend my gold to any gouvernment and do
not buy into an other promise of gold into the future.
Keep my savings into real gold and silver and only
exchange them for real good and services.
I will spend my own money do not need a
government to do that for me.
Thanks but no thanks.
Every time I listen to smart guys like Grant I put their observations and opinions into the FOFOA model. When what they say starts getting fuzzy I think...if they used FOFOA's point of view this would be clearer. After 2 years of 'paying attention' to the global financial mess and many more years of mindless investing I must say that I believe the only guy getting it ALL right is that FOFOA guy. Until proven wrong I'll continue to use his 'system to evaluate what I see happening.
+ $55,000
FOFOA is the rock of gold analysts now.
fofoa.blogspot.com
FUN FACT: Treasury bonds once were backed by gold. There was a clause that FDR removed stating that the holder could demand the debt be paid in gold not dollars.
Grant underestimates the impact of Wall Street criminal fraud on recovery and growth in his assessments... mentions not a word of it...
From fraudulent securitizations, to HFT market rigging, to massive insider trading, to accounting balance sheet fraud at the TBTFs, to out right theft by JPM at MF Global...
Until the fraudsters are jailed and the frauds restrained... there can be no sustained recovery...
iCulture!
Not to be confused with the iCulture S, where the S stands for Serfdom, and is really only marginally different than the original (current and bestselling) iCulture
gold bugs argue that, unlike fiat or barter, Au holds a constant marginal utility.
I'm not sure that's efficient or even desirable in terms of promoting progress.
I think we should aim for something better. If we are to match a geometric growth,
which is the only sane way to map price and wealth distribution with rising population,
we need a money backed by something that actually has increased marginal utility.
look to energy. if you spend energy on making a machine, a business venture, or
any kind capital creating process the corollary is that you will require more energy
to use it, feed it, market it. higher energy order dictates that energy begets more
energy.
it's the perfect proxy for human agency. the more we spend it, the more we discover
new reasons to spend it. in many ways the petrodollar is already backed by energy,
but this needs to be refined to include all sorts of non fossil fuel sources and most
especially the utility of specific orders of energy, such as cooled computational power.