Jim Grant: We Are Now All Labrats Of Bernanke And The Fourth Branch Of Government

Tyler Durden's picture

You put Jim Grant on TV and someone mentions the Fed and the result every single time is the equivalent of waving a red curtain in front of a rabid bull. This time was no different, as the Interest Rate Observer once again let Bernanke, with whom he clarified is no longer on speaking terms, have it. The ensuing central-planner bashing was in line with expectations, and just as we presented yesterday in "The Experiment Economy", so too does Grant believe that the Fed is "learning by doing" and follows up by clarifying that this is an experiment, "and we are lab rats in the financial markets." He then proceeds to lament that the credit markets, clueless NYT econopundits notwithstanding, have now lost all informational value as every rate instrument is purely in the manipulated domain of the Fed. "We are all living in a land of speculation and manipulation" is Grant's summary of the current predicament of anyone who wishes to trade these "markets" and it may as well be the best synopsis of the New (ab)normal. And aside from an odd detour into Government Motors, Grant once again hones in on the only true antidote to central planner idiocy, gold: "the best thing about gold is that it's got no P/E multiple. Gold is a speculation on an anticipated macroeconomic outcome, the systematic debasement of currencies by central banks. Why wouldn't they do QE4? What intellectual argument do they have against doing it again, and again, and again." Well...none.

And while Jim Grant blasting the Chairman is not exactly news, what may be news, is that the man who barely managed to prevent America's collapse in an inflationary mess in the early 80s, Paul Volcker, told Reuters something rather fascinating. Responding to the question whether the Fed has taken on too much power and has too much centralized and unchecked control, the former Fed chairman said "Is too much being centered in the Federal Reserve now, should there be a different arrangement? I'm not ready to take it away from the Federal Reserve entirely, but it deserves a look, it deserves a review of how we have organized the regulatory system." So, did the man who has made prop trading at various banks nearly impossible, and who, oh, ran the Fed, just say that it is time to reevaluate the Fed's role in the world? Why yes. Which explains why nobody in the media is talking about this.

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kliguy38's picture

Put your foot down Jim.....and if you want to be taken seriously get that butterfly off your collar.......

ACP's picture

The second blurb explains why Paul Volcker was a one-termer. Too much truth gets you the boot.

If Volcker became Chairman today, he'd tank the markets & real estate back down the reality right quick, which would set the stage for the most vigorous recovery in decades.

Rainman's picture

I greened ya, but I doubt he'd survive the riots. 

XitSam's picture

I'm waiting for the Bernanke riots. Keeping the tar warm.

old naughty's picture

We have been lab-rats for a long time.

This is just another attempt to identify the Lab-yrinth Owner.

Don't you like the merry-go-around?

Skateboarder's picture

Bitchass Ben's gonna run this fucking show to the ground. It's not when, but rather how you compose yourself when all fails. Bring it on, motherfuckers...

fockewulf190's picture

Lab rats? More like feeder mice...and the snake is never satisfied and always famished

The Shootist's picture

Romney will fix it if the 47% vote that way.

Manthong's picture

You had me worried about your sanity for a moment there..

Hohum's picture


I am not the down arrow, but I think it's a little different than the early  1980s.  The net energy to run society isn't as good (please, someone show me an analysis to the contrary, if it's out there) and the country is much more indebted, saturated with debt.

But dreams are wonderful to have, aren't they?

ACP's picture

I think you're absolutely right about the fact that it's completely different from the 80s, but like every situation, whoever takes the initiative first, reaps the largest rewards.

The thing I haven't heard from any financial reporters or economists is that during the Greenspan housing bubble (and to a slightly lesser extent the tech bubble), people had access to phantom money in the form of their home/ATM. If say, during 2003-2007, one person spent $20k in disposable income, as well as another $20k in disposable income from their home equity, that ONE PERSON created a "phantom consumer." All the businesses flourished with these newfound "phantom consumers" and rocketed to new heights in business. Now that the housing bubble has burst, these home owner/consumers, as well as the additional "phantom consumer" are now gone......basically the equivalent of 2 jobs lost for each homeowner out of work. Edit: I personally know several people who created more than 2 "phantom consumers." This is just an example...I'd like to see the results of real number crunching on this.

After the bubble burst, many businesses, such as Linens n Things got trashed as a result, because "real" as well as "phantom" consumers were lost, and lost forever. BBBY had a larger base and was able to survive the consolidation.

Europe has had high unemployment for a long time, and now it's America's turn. It ain't going away, but can be mitigated if someone actually sees this and takes the initiative.


Poor Grogman's picture

Australian economist Steve keen looks at this very effect when he analyses the change of credit entering the system, which correlates closely with employment.

Visualizing it as additional phantom consumers is interesting

ACP's picture

I actually came up with this theory back in 2007, as a way to quantify the effects of the overbloated housing market on the US economy, to justify my investment decisions during the latter part of the year. Even though I only looked at it on a macro basis, it worked out well.

Poor Grogman's picture

Yep it is a useful insight, for any economic participant.

Understanding this also leads one to understand why the PTB will never end QE unless they can somehow miraculously restart the leveraging cycle.

Grant is right we are all lab rats in this giant debt ponzi experiment, unfortunately for us lab rats, our welfare is secondary to the continuation of the experiment.

Prepare accordingly....

prains's picture

that is why WAR is the backdoor when the ponzi is about to crater

MachoMan's picture

Definitely a solid way of viewing it.  Makes a lot of sense.  I'll add that it's worse than just the consumer and his phantom derivative being extinguished.  For a very, very long time, at least nominally, people had a significant portion of their note payments made for them through appreciation of housing or, alternatively, lived rent free...  this has been going on for decades.  (factor in a ~4.2% yearly increase in home prices since the late 60s and measure it versus paying ~6.5% of the initial balance of your FIXED 30 year note every year).  It gets trickier when factoring for inflation, maintenance, etc. (but these typically aren't ever considered in the purchase decision....).

So now, not only is the ATM machine removed, but people are actually forced to pay for their houses (that are losing value) through wages instead of appreciation of housing...  double whammy.  Further, as the shadow inventory clears, it's going to destroy the smidgen of remaining zombie consumers because they'll actually have to start paying rent.  does.not.look.good

Landotfree's picture

"Too much truth gets you the boot."

The Fed's job is very simple, hold off the collapse as long as possible, try and convince the sheeple that the system is sustainable long-term thereby the system can reach max potential before collapsing.  

All I see is 7 billion unfunded liabilities running from the Truth and for good reason.

Cabreado's picture

"If Volcker became Chairman today, he'd tank the markets & real estate back down the reality right quick, which would set the stage for the most vigorous recovery in decades."

I understand your point, but,

- there should be no Chairman, as there should be no organization to Chair

- doing anything now "right quick" is not an option

- there is no "vigorous recovery" coming, regardless

The Softest Landing Possible is the appropriate goal, and while Volcker might be a decent man for the job, I suspect he wouldn't be interested.

But it's not about a "Chairman" of anything, it's about the most powerful governing body in the history of the world -- and It has demonstrated it has no interest either.

Chuck Walla's picture

If Volcker became Chairman today, he'd tank the markets & real estate back down the reality right quick, which would set the stage for the most vigorous recovery in decades.

Sadly, there are no votes in that kind of common sense.


tenpanhandle's picture

You dirty rat.  You killed my portfolio.

Daily Bail's picture

Hilarious Video: Apple Store Robbed, Getaway BMW Trapped Inside

Just like how they trap buyers of their products with a closed system.

akak's picture

We may all be lab rats, but I don't know what anyone expects the Fed is "learning" by throwing all of us rats into a vat of molten steel --- I think the outcome is pretty much obvious from the start.

Melin's picture

It's the testing that makes science fun.

Anusocracy's picture

Th Fed isn't learning anything, it only seems like it is.

It is just set upon systematically trying every incorrect solution until it is left with the correct one.

By then, it will be too late.

Rasna's picture


C'mon Man...


Votewithabullet's picture

Interest Rate Observer...Your services are no longer needed.

Bolweevil's picture

mmmm, eau d' bernank

Cursive's picture

He's right, but that's really sad.  Wouldn't it be great if we had a President or a presidential nominee that would say, "Mr. BernanQE, tear down your banking cartel!"  But, that ain't gonna happen.

helping_friendly_book's picture

Fucking hawking GM? 


Trust no one!

Drag Racer's picture

air time comes with a price, churn out our ad or you go home...

Slightly Insane's picture

This would make a great "Twilight Zone" episode.  I can hear the music now, with the spinning orb, and swirly bullseye, if it were not true.

XitSam's picture

There is a filthy dimension, beyond that which is known to economists. It is a dimension as vast as Fed economic models and as timeless as high frequency trading. It is the middle ground between Krugman and Keynes, between finance and fiat, and it lies between the pit of man's EBT card and the summit of his stack. This is the dimension of rainbow unicorns. It is an area which we call the Inflation Zone.

OneTinSoldier66's picture

At the end of it that old commercial, the phrase "As good as Gold" is used.

buzzsaw99's picture

Volker is a mealy mouthed wimp these days. the fed is a criminal organization controlled by the ny bankers for the front run, pump and dump, and every other dirty deal. they are crooked as a dog's hind leg and should all be rotting in prison. why just today jpm was accused of pulling the old enron scam on california again. die bitchez. end. the. fed.

Tourist2008's picture

This is the first time I have heard Volker speak and actually I found him intelligent and refined. If public administration was full of leaders of his calibre, I am sure things would be a lot better than they currently are.

It may surprise you to know that if you want to wield influence in political circles you have to be measured in your approach and your language. He seems to be the master of that while having a backbone .....

.... anyway, perhaps a buzzsaw is a better approach :)

blunderdog's picture

His humility sure was refreshing.  "I dunno...I wasn't dere!"

WhiteNight123129's picture

Paul Volcker kick started a leveraging cycle, the kings of the days, the guys making money out of excess circulation (commodities) hated it. Bernanke is kick starting a deleveraging cycle, the king of the days the guys making money out excess leverage from circulation (bonds and equities) hate it, what else is new?

Snidley Whipsnae's picture

I was not a 'king of the day' but definitely benefitted from long bonds paying greater than 13% for the past 30 years. One doesn't have to be a tycoon, nor a genius, to buy some 30 years and sit on them.

Volker made possible for all of us little guys to catch a break on an investment... and, if Benny boy wants to avoid total destruction of the dollar he will at some point jack interest rates above inflation (the real inflation rate not the fantasy rate). Is it going to be painful? Damn right... but it would have been much less painful if the Fed had not intervened to prevent the casinos on Wall St from bankruptcy.

I am sick of living in this damn petri dish while idiot 'economists' perform experiments on me/us...

How can these manipulations be labled experiments when the results are known before the experiment begins?

Hell is coming to breakfast. Kudos to Jim Grant and TD for the posting.


grid-b-gone's picture

Wall St saw that decent money you were making as a saver. They saw the home equity, the silent "second earner" of home equity mentioned in a comment above.

They began by seeing good worker pay and benefits in the 1980s and tapped that with LBOs, outsourcing, independent contracting, and offshoring. 

They used the "fourth branch" of government to cut you, the middleman CD saver out of the free market, giving 0% money directly to banks. All that CD money that Grandma and Grandpa used to funnel to the grandkids for college got transformed into student loans.

They are tapping health insurance premiums by drawing millions more into the web via federal mandate.

Now hedge funds are buying the real estate tied to mortgage-backed securities at deep discounts in quiet transactions, rather than publicly auctioning the assets to the highest bidder. Taxpayers cover the realized losses that the suspension of mark-to-market prevented for the past four years.

After garnering rock-bottom prices they will spawn a generation of renters and probably move to curtail Fannie and Freddie mortgage guarantees to allow for faster rent increases. 

They can still buy up municipal buildings to rent back to citizens. Public highways can still be bought and turned into toll roads.

What do the masses spend money on? That is where the next opportunity is. It only takes a few rule changes to swing the game in their favor. They have congress in check and the fourth branch was created for just this purpose.

calgal's picture

And that's why the Fed plan is to spend 40 bil on MBS per month, slice and dice into derivatives and blow the whole derivate bomb sky high
Mortgage meltdoen pas duex
Meet Uncle Fed your new landlord

JohnKozac's picture
The Creatures from Jekyll Island are giving everyone a -1 tonight. They must be restless.
fonzannoon's picture

These guys are all pussing out lately. Even Grant here, when questioned, recommends and equity (GM!) as a way to hedge against money printing to infinity. It seems as the noise gets louder even guys like him start making pretend they can't hear taps playing in the backround. Only Schiff and maybe Rogers are still running around with their hair on fire.

TWSceptic's picture

I think Grant either got a nice check from GM or is talking his book. I don't fully trust him tbh. BTW did you see that clip where Rogers recommends CNBC? They must pay good.

Melin's picture

You don't think gubbamint billions will flow into gubbamint motors?  

deki's picture

Wtf? I have so much respect for Grant but this GM bullshit is just ridiculous.