4 ms·

From the conclusion: > In the historical record, crises are like fires and the government interventions in those crises are firefighting. ... There's a brilli

by aazaa 5y ago

From the conclusion: > In the historical record, crises are like fires and the government interventions in those crises are firefighting. ... There's a brilliant quote from James Grant to the effect that the US Federal Reserve acts as both firefighter and arsonist: https://www.bloomberg.com/news/videos/2015-08-27/fed-s-functional-mandate-is-arsonist-and-fireman-grant https://www.bloomberg.com/news/videos/2015-08-27/fed-s-funct... It's not clear that the paper even considers this perspective. Instead it seems to take the position that banking crises naturally evolve, rather than get spawned by policy missteps to correct the previous crisis.

HPsquared 5y ago
To extend the analogy, wildfires also evolve naturally but can be exacerbated by firefighting policy: extinguishing small fires too much, allowing an accumulation of flammable materials which eventually lead to a much bigger fire.
- jjoonathan 5y ago
  Fires evolve according to fuel availability, wind, water and so on. They aren't active, intelligent agents commanding vast resources in a constant search for newer and better ways to socialize the losses and privatize the gains. Have you ever known a fire to intentionally cultivate moral hazard?
  - HPsquared 5y ago
    It's not just fire, there is an organic component of my analogy: the ever-growing and adaptive forest, which will take any opportunity it can to accumulate biomass.
- Aunche 5y ago
  The difference is that fires predictable, and you can have controlled wildfires. There's no such thing as a controlled financial collapse. I agree that the fed intervened too heavily during the pandemic, but I think that 2008 struck the correct balance of intervention. Several financial institutions went bankrupt and most others lost over 90% of their market cap.
throw0101a 5y ago
The James Grant that, in 2010, was one of the co-signers of the Open Letter to Bernanke: > We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment. * https://economics21.org/html/open-letter-ben-bernanke-287.html https://economics21.org/html/open-letter-ben-bernanke-287.ht... The same James Grant that, in 2011, thought we should go back to the gold standard to head off the looming debt catastrophe? > How does America, looking up from the bottom of a $14.3 trillion sinkhole, claw its way out of debt? For starters, says perennial Wall Street bear James Grant, go back to the gold standard. > In an interview with The Fiscal Times, the editor of investment newsletter Grant’s Interest Rate Observer, says: “No other reform would accomplish so much to hasten the return both of growth and fiscal balance. The reserve currency franchise, which America uniquely possesses, is a kind of global credit card on which the outstanding balance never seems to come due and payable. This country needs a debit card--and the gold standard is that debit card.” * https://www.thefiscaltimes.com/Articles/2011/06/28/A-Solid-Gold-Fix-for-the-National-Debt https://www.thefiscaltimes.com/Articles/2011/06/28/A-Solid-G...
- hogFeast 5y ago
  The same James Grant that predicted the junk bond meltdown, the same James Grant that predicted the dot-com bust, the same James Grant that predicted the housing crash, the same James Grant that predicted the meltdown in Chinese resi...if you have experience in markets, you will learn two things: everyone makes wrong predictions, and you can be wrong now/right later. Also, you appear (for some reason, have you ever read Grant's?) not to mention any of the numerous calls on individual stocks they have got right. The macro is only part of what they do. When you are read by pretty much every hedge fund manager in the world, when they will pay $2.5k to come to your conference, and $1.3k/year for a subscription...you are doing something right (also, as someone who studied economic history, his book are first-rate...compare his books to Philip Coggan, a columnist at the Economist who has written books on economic history, it is night and day...Grant's books are academic tier quality, people who work in finance today still read books he wrote three decades ago).
imtringued 5y ago
The fact that your money loses value is an inherently good thing. Think about having a coupon for a banana. The store raises the value of the coupon above the cost of the banana because it knows that it doesn't sell all bananas in the store. It has to throw some of them out. If the coupon lost value over time according to the rate that bananas spoil then the value of the coupon would be the same as the cost of the banana. Just think about how absurd it is that the banana is less valuable than the coupon that gets you a banana. At the end of the day all you get is a banana either way. It's the same with money and labor. If money is more valuable than labor then people hoard it.

by aazaa 5y ago

HPsquared 5y ago

To extend the analogy, wildfires also evolve naturally but can be exacerbated by firefighting policy: extinguishing small fires too much, allowing an accumulation of flammable materials which eventually lead to a much bigger fire.

jjoonathan 5y ago
Fires evolve according to fuel availability, wind, water and so on. They aren't active, intelligent agents commanding vast resources in a constant search for newer and better ways to socialize the losses and privatize the gains. Have you ever known a fire to intentionally cultivate moral hazard?
- HPsquared 5y ago
  It's not just fire, there is an organic component of my analogy: the ever-growing and adaptive forest, which will take any opportunity it can to accumulate biomass.
Aunche 5y ago
The difference is that fires predictable, and you can have controlled wildfires. There's no such thing as a controlled financial collapse. I agree that the fed intervened too heavily during the pandemic, but I think that 2008 struck the correct balance of intervention. Several financial institutions went bankrupt and most others lost over 90% of their market cap.

throw0101a 5y ago

The James Grant that, in 2010, was one of the co-signers of the Open Letter to Bernanke: > We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment. * https://economics21.org/html/open-letter-ben-bernanke-287.html https://economics21.org/html/open-letter-ben-bernanke-287.ht... The same James Grant that, in 2011, thought we should go back to the gold standard to head off the looming debt catastrophe? > How does America, looking up from the bottom of a $14.3 trillion sinkhole, claw its way out of debt? For starters, says perennial Wall Street bear James Grant, go back to the gold standard. > In an interview with The Fiscal Times, the editor of investment newsletter Grant’s Interest Rate Observer, says: “No other reform would accomplish so much to hasten the return both of growth and fiscal balance. The reserve currency franchise, which America uniquely possesses, is a kind of global credit card on which the outstanding balance never seems to come due and payable. This country needs a debit card--and the gold standard is that debit card.” * https://www.thefiscaltimes.com/Articles/2011/06/28/A-Solid-Gold-Fix-for-the-National-Debt https://www.thefiscaltimes.com/Articles/2011/06/28/A-Solid-G...

hogFeast 5y ago
The same James Grant that predicted the junk bond meltdown, the same James Grant that predicted the dot-com bust, the same James Grant that predicted the housing crash, the same James Grant that predicted the meltdown in Chinese resi...if you have experience in markets, you will learn two things: everyone makes wrong predictions, and you can be wrong now/right later. Also, you appear (for some reason, have you ever read Grant's?) not to mention any of the numerous calls on individual stocks they have got right. The macro is only part of what they do. When you are read by pretty much every hedge fund manager in the world, when they will pay $2.5k to come to your conference, and $1.3k/year for a subscription...you are doing something right (also, as someone who studied economic history, his book are first-rate...compare his books to Philip Coggan, a columnist at the Economist who has written books on economic history, it is night and day...Grant's books are academic tier quality, people who work in finance today still read books he wrote three decades ago).

imtringued 5y ago

The fact that your money loses value is an inherently good thing. Think about having a coupon for a banana. The store raises the value of the coupon above the cost of the banana because it knows that it doesn't sell all bananas in the store. It has to throw some of them out. If the coupon lost value over time according to the rate that bananas spoil then the value of the coupon would be the same as the cost of the banana. Just think about how absurd it is that the banana is less valuable than the coupon that gets you a banana. At the end of the day all you get is a banana either way. It's the same with money and labor. If money is more valuable than labor then people hoard it.