Jim Grant explains how Central Banks are Waging War on Supply and Demand

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Welcome to Capital Account. Last month, the federal reserve bank of new york invited some of its critics, including our guest, to, as he put it "unburden themselves of their criticisms." The text of his remarks was published in the March 23rd issue of Grant's, and it is most certainly worth reading for those who are wise enough to subscribe. There are a number of points that James Grant makes in his remarks that we have repeated ad nauseum on this show ourselves: accountability for bank executives, a functioning price mechanism, sound money...you know...capitalism.

But the editor of Grant's Interest Rate Observer also makes another interesting proposal with respect to what he would do if, by some act of market revenge, he were made Chairman of the Monetary Priesthood. He would, as he put it: "commission, staff, and ceremonially open the Fed's first Office of Unintended Consequence."

Economics is, after all, a social science, and as such, is beholden to the unintended consequences brought about by the actions of the observer as much as by those of the subject being observed. Imagine if we designated responsibility for precipitation and cloud cover to executives at "The Weather Channel?" Even if this new politburo had the best of intentions, would you feel comfortable ceding control of the weather to a group of 12, unelected, and highly fallible, human beings?

We think not, and if you believe the weather system is not a fair comparison to the system of money and credit, we would beg to differ. The weather, as well as the economy, are both chaotic systems. They are dynamic, and they are organic. They are not well oiled machines to be manipulated and driven from point A to point B at the discretion of some ceremonially chosen motorist, no matter how pure or benign his intentions.
But how would the economy function without the central planners and their open market operations? How would the sacred rate of interest be determined without the shepherds at the Fed? Surely there must be someone to guide the economy...

To help guide us in our pursuit of answers on this, and other topics, is Jim Grant, author and editor of Grant's Interest Rate Observer.

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[majik2hanz]

Another great guest- just shows how much more educational and insightful RT is (on this topic) over the mainstream regurgitating finance- econ talking heads they trot out to spew the same old crap. Way to go.... keep it up.

On the macro level since you are Russia Today have you ever featured an episode on Nicolai Kondratiev and the long wave Cycle theory he espoused? It would make an interesting topic.

[majik2hanz]

Grant's mention of weights and standards prompted me to pull out this excerpt from Robt Heinlein's posthumous sci fi released in 2003 For Us The Living. It is a futuristic exposition between a character from 1939 talking with econ prof in 2086.

Protaganist - "what is the new money worth if anything? In my day money could be exchanged for gold but not readily, How can one be sure this new money is anything but pieces of paper?"

[George Doughty]

Bankers should be assigned fiduciary responsibility. They screw up, they pay.

[MajorRugburn]

"high hopes" are officially DEAD. it will take a miracle, better yet, a revolution, to turn things around.

[ghosttimer]

I believe your wrong about the market not being manipulated by individuals Morgan,Rockefeller,and others created a panic in the market to pass financial law which created the federal reserve with only reason for existing is to cause debt cause each dollars produce is loan to the people and the government so the need to print more money to loan for the debt due to the interest. They took our gold away and gave us a currency that is base on a system were the banks set the value of the currency

[Huy Nguyen]

jim is short for james

[Freshoffdahoodbro]

is this guy's name Jim or James?!

[Alex Tahti]

Where does it go? Global collapse.

[hodoprime]

Just make the banks play by the same rules as common citizens and it will work itself out.

[AllSentientBeings1]

People who talk that loud don't have a clue what they're saying, she's just reading with exaggerated expression

[ulaghchi]

Gotta love Lauren.