Jim Grant: "I think there’s an intellectual cock-sureness that has no grounding. When you listen to Ben Bernanke as he held forth on Sixty Minutes at the end of last year assuring the journalist doing the interview that he, Bernanke, was 100% sure, 100% certain of what he could do, you cringe because nobody is 100% sure of anything in this world.”
“Nobody who’s been around the block once or twice is sure of anything except perhaps the date of the week and even that, some days one wonders is it really Wednesday? So Bernanke he has I think the professional economist’s self confidence that somehow these people imbibe in graduate school. I think the pseudo scientific nature of quantitative economics empowers them in a way that other mortals could never fully appreciate. But whatever it is they think they know, I know one thing, and that is they know less.”
When asked about the Great Recession and how it has left its mark Grant replied, “It is notable. Not so many months passed from the depths of our sorrows in 2008 and 2009 before people seemed to be reverting to much the same kind of financial conduct that was much in evidence in 2005, 2006, 2007. The cycles are getting shorter. Then again the government is now in the business of, so it declares, of restoring financial prosperity through main force.
So, after the Great Depression there was nothing like the policy that Ben Bernanke and company have been implementing now. I don’t think that human beings are much different than they were way back when, but certainly the government’s response to crises is vastly different.”
When asked about gold specifically Grant stated, “To me the gold price takes the form of a very uncomplicated formula, and all you have to do is divide one by ‘n.’ And ‘n’, I’m glad you ask, ‘n’ is the world’s trust in the institution of paper money and in the capacity of people like Ben Bernanke to manage it. So the smaller ‘n’, the bigger the price. One divided by a receding number is the definition of a bull market.
You’ll notice that this had nothing to do with security analysis. This is conceptualizing, brainstorming, nothing to do with price/earnings ratios, other valuation methods like cash flows. It is a proposition or a hypothesis on what is driving the gold market. So the gold market is necessarily a speculative piece of business. It’s not to be confused with the kind of investment that Ben Graham wrote about. Anyway, I happen to be bullish on it, but not for reasons that I can readily defend before a member of the fraternity of chartered financial analysts.”
When asked how the United States will resolve its debt and deficit problems, Grant remarked, “Well, in my mind it will resolve them necessarily by undertaking the step of restoring the dollar to convertibility into gold.”
Jim Grant has become legendary for having one of the top financial publications in the world. This comment from the Financial Times points out one of the many reasons for Grant’s success, “If Grant could see what was happening this clearly,” wrote John Authors of the staff of the FT, “and warn of it in a well-circulated publication, how did the world’s financial regulators fail to avert the crisis before it became deadly, and how did the rest of us continue to make the irrational investing decisions that make Mr. Market behave the way he does?”