Yesterday, when discussing the forthcoming implications of the Libor scandal, we said that in the barrage of coming lawsuits, "the entity that will be sued by proxy is the Federal Reserve, whose Federal Funds rate is really the setter for the baseline Libor rate." This claim came at an opportune time, just hours before one of the Fed's most vocal critics (and gold standard advocates), Jim Grant, appeared on TV to discuss precisely the same thing. Best summarizing his position is a cartoon that appeared in a recent issue of Grant's Interest Rate Observer in the context of Lieborgate, and who is really at fault here.
What follow next are some of the traditionally brilliant bullet point that we have come to associate with Grant.
On the Fed's arsenal:
The Fed is not out of bullets; the trouble is its gun shoot backwards. These massive interventions in the marketplace distort the price we call interest rates.
On Liebor and the Fed:
The banks fixed Libor. The Fed fixes rates. The banks do this surreptitiously and opportunistically. the Fed does it for a living.
On whom anger should really be focused:
The idea that these guys talking about what they might finance their bank, that they are in charge of manipulating interest rates is absurd. The central banks do it all the time, they do it massively. The outrage ought to be directed at them...
On the Fed's centrally-planned "reality show":
Ever see the Truman Show where Jim Carrey's character finds out he is living in a TV set: he finds out because he rows his boat into the painted canvas sky: that is life under the rule of central banks.
On the paradoxical perfect storm which everyone sees:
Everyone is talking about the "perfect storm": the fiscal cliff, and China, and Greece, and Europe, there is a constellation of bad news: the Wall Street Journal is the grimmest reading in years. How can this be a perfect storm if we can see it coming?
One observation which our European readers will likely not find too palatable:
The trouble with Europe is they work 5 hours a day, nothing to do with a shortage of Euros.
And finally, where people should get "yield":
You plant black walnut trees, and in 30 years they flower to $1000 each, you pay $5 for them, that's a zero coupon tree, that's where you get yield.
Full clip below: