First up, Jim Grant of Grant’s Interest Rate Observer. Jim’s been around Wall Street for years peddling his investment paper. On balance, he’s not horrible. However, he’s a gold bug and last week he made a big goof on Bloomberg during an interview. His idea is that inflation and debt would magically disappear if only we would return to gold standard, a nonsense proposition that ignores the fact that:
1) There was inflation when the dollar was convertible to gold at a fixed rate.
2) There was tremendous instability in the economy when we were on the gold standard, specifically in the financial sector which leads to numerous bank ‘panics’, recessions and depressions.
3) There was still deficit spending by the Federal Government when we were on the gold standard.
Jim then went on to attack Paul Krugman regarding his prescription for deficit spending on hard assets to pull the US out of the current slump. Jim pointed out, incorrectly, that the 1920-21 depression was ended when the NYFed raised interest rates (that was actually a contributing factor to the depression) and that government balanced the budget. What actually pulled the economy out was a decrease in interest rates and a drop in tax rates for their relatively high WW1 levels. It’s also worth noting that the 1920-21 depression didn’t feature a massive demand gap (which we’re living with today), nor was it caused by a financial panic. In laymans terms, it’s like comparing an apple to an orange. It’s not the same situation so you can’t do the same things. Smart people know that. Idiots like Jim Grant don’t… they just lie and misinterpret data. In point of fact, it was higher interest rates which actually helped CAUSE that depression. Which, of course, may help explain why someone like me is furious that he’s on TV talking confidently while saying things that clearly indicate he’s completely clueless.
Then there was Newt Gingrich who lied about his lobbying job with Freddie Mac… he says he was an adviser/consultant, not a lobbyist. Originally he copped to $300,000 in payments for his lobbying but that number has now ballooned to $1.6 million. Newt says that Freddie Mac came to him, a middling history professor from an undistinguished school, and told him that they were all about making No Doc loans and asked him what he thought.
Now, this is a really stupid lie since everyone knows you don’t ask a non-expert in an industry for analysis. I wouldn’t ask the mechanics at the Volvo dealership where I bought my car (Roger Beasley..6375 East Hwy 290 Austin, TX 78723 (512) 452-0266. Now, how about a free oil change, dicks?) what they thought of the collateral I was considering using to secure a loan. I also wouldn’t ask a history professor from Georgia. Freddie Mac bought those loans from Wall St for the same reason Fannie Mae did, they wanted the yield. Those loans had coupons that were double what A paper mortgages offered with just about the same risk of default, at least according to the rating agencies. Now, you can say their management team was stupid for blindly following the rating (and I think they should all sued by the Freddie for fiduciary failure), but they weren’t ‘making’ the loans so there’s no way in hell any of Gingrich’s story is true.
Oh, and he never once said prior to 2007-2008 that the country was in a housing bubble. He was too busy trying to scam lobbying dollars out of Freddie Mac to support his personally profligate spending.
The boldness of his lie is what’s truly stunning. Even for Gingrich who apparently has never worked in the industry, has no idea what he’s talking about and looks comical and clownish to those of us who do.