Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

All Global Prices Are Artificial Thanks to Central Banks (Video)

  by    1   2

Jim Grant appeared on CNBC this morning with an explanation of the underlying reason why United States stocks just plummeted. His core message is that capitalism requires both success and failure. When central bank monetary policy corrupts pricing as thoroughly as it currently has, it ruins the market’s ability to withstand healthy business failures. Grant doesn’t talk about it in this interview, but just a month ago he reminded us of the best assets to hold as protection from this distorted financial world – precious metals.

The prices themselves are the cosmetic evidence of underlying difficulty. So if you misprice something, it’s not just the price that’s wrong, it’s the thing itself that has been financed by the price. So you have perhaps too many oil derricks, too many semi-conductor fabs. We have too much of something, which is financed by an excess of credit or debt. That, to me, is the essential backstory to this morning’s difficulties. It’s the mispricing of asset values, led by central banks who think that by inflating or lifting up stocks, bonds, real estate, they will thereby engender prosperity…”

Highlights from the interview:

“[There is] one essential monetary idea [in this world]. That idea is that central banks can and should manipulate – override – the price mechanism… I think this idea is a worldwide idea, but it had its genesis in the United States. Ben Bernanke was an early proponent of it. The idea is that you put the cart of asset values before the horse of enterprise. By raising up asset values, you mobilize spending by people who have assets… It was otherwise known as trickle-down economics before the enlightenment, then it became something much fancier in economic lingo. But that’s essentially the idea. So what you have seen is an artificial structure of prices worldwide.

“The prices themselves are the cosmetic evidence of underlying difficulty. So if you misprice something, it’s not just the price that’s wrong. It’s the thing itself that has been financed by the price. So you have perhaps too many oil derricks, too many semi-conductor fabs. We have too much of something, which is financed by an excess of credit or debt. That, to me, is the essential backstory to this morning’s difficulties. It’s the mispricing of asset values, led by central banks who think that by inflating or lifting up stocks, bonds, real estate, they will thereby engender prosperity…

“In capitalism there is meant to be failure. It’s like the forest floor. There is life, there is regeneration, there is death. Without that, what you find is a bunch of dead ferns. What we have in America, it seems to me, is more and more evidence of ‘ferninization.’ Radio Shack was an example of a business that was improbably surviving on the sales of extension cords in the digital age, and it had been financed with very leniently priced junk debt. What this does is to slow the metabolism of capitalism. So people say, ‘The Fed! These geniuses have succeeded in saving us from the abyss of 2000 and’ – Well, maybe. I doubt that. What they have given us is a system of enterprise that is much slower to change…

“The Fed wanted to stimulate so-called aggregate demand. So it prints money. It suppresses interest rates. It wants to have a lot of financial activity. But in so doing, it reciprocally stimulates aggregate supply. So there’s a lot more of everything – a lot of big cap ex, a lot of big production, a lot of oil. And the lot-of-everything weighs on price indices and the Fed’s like, ‘Oh, we’re not meeting inflation targets. What shall we do? We shall print more money, suppress interest rates for another…’

“Mispricing of debt does two things. It pulls demand forward, and it pushes failure out. So the junk bond default rate over the past 12 months has been the lowest in the 40-odd years in which the data has been collected – 2.3%, versus an average of something like 4%. So on its face, that’s a good thing. We don’t want people failing, because they might be your neighbor. And yet without that, without the dynamism thats success and failure introduced to enterprise, what you’re looking at is like in Europe.”

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

New Peter Schiff Interview: We’re Paying the Price for Deficits

Last week, Peter was interviewed on Speak Up with Anthony Scaramucci. In their conversation, they covered a wide range of important topics, including inflation, the fate of the dollar, and the trade-offs between gold and cryptocurrency. 

READ MORE →

Dollar Down 20% Since 2020, Biden Blames Greed

Assuming CPI measurements are not understatements, the dollar’s value has plummeted by a staggering one-fifth since 2020, yet, rather than acknowledging its role in fueling this economic turmoil, the Biden administration deflects, casting capitalism and corporate greed as the villains. The latest February CPI data show more signs of the upcoming inflation bloodbath.

READ MORE →

The Myth of Fed Neutrality

Powell follows the president's wishesThe Federal Reserve is often viewed as a neutral guardian of the economy, tasked with safeguarding employment and ensuring stable prices. However, the Fed is run by individuals who, like anyone else, are swayed by certain motivations. Do the people behind the Fed truly have the incentive to remain impartial? Our guest commentator demystifies the […]

READ MORE →

Peter Schiff: Gold is the Canary in the Economic Coal Mine

This weekend, Todd Sachs interviewed Peter on the state of the economy. They discuss the parallels between now and the 2007-2008 housing crisis, the role of economic sentiment in voters’ opinions, and why foreign central banks are losing faith in the dollar.

READ MORE →

Massive Deficit Spending Tows US Economy Forward

A truck titled "US gdp" tows along another car, the US economyRampant government spending continues to mask fundamental weaknesses in the US economy. Recently, national debt grew much faster than the economy for the third quarter in a row, just one of many warning signs concerning legendary investors. Our guest commentator explains just how much the government is spending to make the economy seem strong, even […]

READ MORE →

One thought on “All Global Prices Are Artificial Thanks to Central Banks (Video)

  1. von says:

    The funniest part of these segments, is that these hired hands pretend that they don’t fully understand what he’s saying and its the first time they’ve ever heard this point of view.

    “That’s really interesting Jim Grant, I think I basically understand what you’re saying here”. Surrre ..

Leave a Reply to von Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Call Now