SAURABH MADAAN: Hello, everyone. My name is Saurabh Madaan. And I'm very happy to welcome you all to the next talk in our investing series. I couldn't be more pleased than to have here in person none other than James Grant. Mr. Grant has a lot of accolades and accomplishments that I'm going to talk about. But just to give you a little bit of a flavor, he has a fantastic personality and a charm with one-liners. He comes up with them magically. So before this talk, we came here to this room for the talk. He was telling me, he said, I'll explain investing to you in ones and tens. And he said, brilliant investing is when everybody agrees with you. And he paused for like five seconds and said, later. And today is going to share with us a tale of what he calls the forgotten depression. The forgotten depression tells of the slump of 1920 and '21, with high unemployment, collapse in commodity prices, upsurge in bankruptcies, and a sharp break in stock prices. Unlike the Great Depression, the 1920 affair was over in 18 months. What do you think the Federal Reserve did? How much did they lower interest rates by? Well, the fact is they actually raised interest rates. And this is puzzling, right? What explains the brevity of this depression, considering the actions of the policymakers? And Jim is here to help in person, to help us unravel and deconstruct what really happened behind the scenes. So Mr. Grant, James Grant, is the founder and editor of Grant's Interest Rate Observer, a twice monthly journal of financial markets. He is the author of works of history. Example-- "Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken," and biographies. Another example, "John Adams: Party of One." His journalism has appeared in the "Wall Street Journal," the "Claremont Review of Books and Foreign Affairs." His television appearances include "60 Minutes," "Charlie Rose," and a 10-year stint on the "Wall Street Week" with Louis Rukeyser. So without any further ado, ladies and gentlemen, please join me in welcoming the one and only James Grant. JAMES GRANT: Well, I thank you. And I thank Google, and I thank the worldwide television audience. I'm going to stop displaying the merchandise. But thank you for the thought. May I begin by inviting you to imagine that we are removed in time to the late 17th century. And it's about 1685. And you are in a London coffee house. And you see two of your acquaintances. One is Sir Isaac Newton. And the other is Sir William Petty. No Petty will turn out to be one of the founders of modern economics. And of course, Newton's reputation preceded him even then. Smart cookies, both of them. Each, as you knew, intuited, was on the verge of something wonderful in his respected discipline. Imagine now that you, a citizen of the 17th century, are transported in time and in life to the present day. And you are informed the physicists have recently discovered the God particle. Whereas the economists, who in 2008 failed to predict the biggest cyclical event of their professional lives, are debating the efficacy of 0% rates. Or is it negative percent rates? Or is it something else? Plainly, physics has made a different kind of contribution to human society than economics has. So I stand before you in a most unlikely setting in which to propose the thesis that in matters of money and credit, the world has gone not ahead, but rather behind. If there's any audience institution that ought to be skeptical of a claim that progress is not inevitable and wondrous and irrepressible, it surely must this splendid company. But nonetheless, that is my thesis. I submit to you the progress, at least in the physical sciences, is cumulative. We stand on the shoulders of giants in economics and finance. Progress is rather cyclical. We go forward. We go back. But we keep stepping on the same rake. And in the four hours given to you today so generously by the company, I'm going to try to persuade you that we are, in fact, stepping on the rake of money. Now the curious thing about money, we spend a-- now as you can tell, I'm not an employee of Google. You might infer by the fact I did not get the memorandum about dress today. On Wall Street. And people in my neck of the woods spend their entire lives trying to accumulate dollar bills. But I warrant to you that not a single one of my dollar-- I was going to say grubbing-- my dollar-accumulating Wall Street friends has devoted more than a few minutes in the course of his or her career to thinking about the nature of that piece of paper that he or she has invested so many heartbeats in accumulating. You know, a bond is a promise to pay money. You've heard about bonds, of course. Debt instruments. But what is money? So Chicago Cubs fans-- and now the world is full of them-- might be wondering about life the last time their team was this good. That was 1908. Famously, the Cubs have been unsuccessful since that time. They won the World Series in 1908. And to send out a marker in time, I'm going to describe the financial and credit arrangements prevailing the last time the Cubs won the World Series with the present day, which is respectively the next time the Cubs are going to go someplace besides home in October. And the year is 1908. And here is the way the world worked with respect to money and credit. With regard to money, the dollar was defined as a weight of something tangible. Gold, $20.67 got you an ounce. That was written into the law. The dollar was convertible into gold at the option of the holder of the paper currency. Such seemed to be the logic of the constitutional stipulations about money, Article 1, Section 8 defined money-- talked about coining it. And in that same constitutional breath, Congress was given not only that right, but also the duty to set weights and measures. Money was a weight and a measure. Money is today something very different. It has become an instrument of national policy. As to credit in 1908, the stockholders of a bank were responsible for its solvency, which meant if an institution became impaired or insolvent, the stockholders got a capital call. That is, the courts ordered them to fork over the unpaid in portion of the par value pro rata. So if you were a bank stock investor, and your bank hit the rocks, the sheriff would come calling if you didn't heed the first call from the court. Which seemed to make sense. After all, you, the stockholder, got the dividends when things were going well. Why shouldn't you be responsible for the debts of the firm when things were not going well? That was then. Individual responsibility and credit and money defined as an objective weight and an objective measure in the law. So fast forward to today. With respect to banking, despite or perhaps indeed a little bit because of the Dodd-Frank legislation, even more are the biggest banks in the country the responsibilities of the taxpayers. Risk to a great degree has been socialized. Removed from the province of individual responsibility. As to money, what is it exactly? Well it's not defined. A dollar is what the mandarins at the Federal Reserve, and with the market in concert with the central banks choose to make it. Here is an observation concerning the nature of modern money, central bank-issued money. So since our sorrows of 2008, the world central banks have issued in the aggregate about $10 trillion worth of something called money. I mean, even a gold bug such as myself would not disdain to pick up a hundred dollar bill if he saw it lying on the sidewalk. But note the effort required to materialize $10 trillion in purchasing power. The effort required is no greater, no less than that required to tap in anything on YouTube. The cost of production of money is zero. In times past, the cost was substantial. It required human labor to mine gold and silver. So the cost of production is negligible. The effort to recreate these units of currency is negligible. And we know, I mean, we somehow know it even if we don't actually know it. We're aware that the money is increasingly pixels. No weight. No corporeal substance. It exists on the hard drive or in the cloud. We know that, accept it. Here is a story about one of the not insignificant holders of American common equity, including Alphabet and Apple and Exxon Mobil and Facebook and the like. The holder in question is a Swiss National Bank-- the Central Bank of Switzerland-- the gnome's own Federal Reserve. And the Swiss National Bank, like some sort of New York hedge fund, files a 13F form every quarter. 13F form with the SEC enumerates the filers' holdings of common stock, give them some stock by stock. And the Swiss National Bank's filing is voluminous. And you look down, you see all these individual names. Owns 100,000 shares of this, 40,000 shares of that, a billion to-- where did the Swiss National Bank get the money to do this? Why, it created it. It manufactured it. It materialized it. It conjured Swiss francs with which to suppress the unwanted appreciation of the Swiss franc against the euro. So it accumulates euros with francs that it invents for the purpose. And with those euros, it buys dollars. And with those dollars, why, it buys your company. Buy shares in some great tech companies, not so great industrial companies. All manner of companies. 2,600 different names in the 13F filing. Now there's nothing really different. Common stocks versus bonds. The World Central Bank have bought like $10 trillion worth of bonds. But to me, the vivid nature of present day money conjuring, of materialization of these units of digital scrip, these ever so much more vivid when you think about something for nothing. And ladies and gentlemen, the purchase of actual interest in productive American enterprise is something. And the currency with which those shares are purchased is, in some sense, nothing. So this talk, as you can see, has taken the form of a lamentation rather than a really helpful investment talk with CUSIP numbers and ticker symbols, and the like. But I wanted to emphasize-- I hope not to the point of ennui-- but still to emphasize my basic thesis, which is that we are to a great degree the unthinking prisoners in a kind of hall of mirrors. We are living in the world of the central banks. And I only wish that more of us would speak up and protest. Like, where is the exit? How do we get out of here? What was the movie in which the protagonist lived in the world of a TV set? AUDIENCE: "Truman Show." JAMES GRANT: Ah, yes. Right. Well, that's our world in a way. We live in a hall of mirrors. And it's a very pleasurable hall of mirrors insofar as asset prices keep levitating, and the rich keep getting richer. Nothing wrong with that, I suppose, if one is a member of that fraternity. But it is a world of artifice. Now I claim to you in the early going that in this most improbable setting of progress, innovation, and to be sure, of imagination, that in the very important realm of finance and credit, we are not progressing, but rather retrogressing? How is such a thing possible? Well, I invite you to just to join with me in a kind of intellectual or historical sidebar. The year is now 2012. And as I recall, there was another presidential election. I can't exactly recall the name of the Republican candidate. Something to do with Romney, I think. Any case, not entirely successful. Before his political failure became common knowledge, there was a great commotion among Republicans to task the imminent Romney administration with the duty of forming a commission to study alternatives to present day monetary arrangements. That is to say, let's do something about the Federal Reserve. This was called a Gold Commission. The idea was to pick out the best aspects of monetary regime of yesteryear, and perhaps to find a way out of our delightful-- that is for the asset portion holding the community-- our delightful prison. Our money prison. And this little thought bubble of a Gold Commission was met with polite smiles and in some cases, outright derision, by the savants of the economics profession, especially the academic world. And one of them-- I believe it might have been Larry Summers-- as long as Republicans were thinking about gold, they might as well investigate the possibilities of the commission to bring back witchcraft. Well, I thought that was a little abroad. And it set me thinking about an essay by Hugh Trevor Roper published some time ago. There's a delightful essay. I commend it to everyone who was in the business of improving the future and of seeing progress in action. Namely, everyone in this room. And it's called the "European Witch Craze of the 16th and 17th Centuries." And in it, the author, Trevor Roper, sends up a warning signal against the common presumption that the history of thought traces a straight line from the darkness to the light. Far from it, as he shows by setting in evidence the outbreak of quote-- "dark passions and infallible credulities amidst the flowering of the Renaissance." "And the belief in witches was not," Trevor Roper writes, quote-- "as the prophets of progress might suppose, a lingering, ancient superstition, only waiting to dissolve. It was a new explosive force, constantly and fearfully expanding with the passage of time. Credulity in high places increased. Its engines of expression were made more terrible, more victims were sacrificed to it. The years 1550 to 1600 were worse than the years 1500 to 1550. And the years 1600 to 1650, more terrible still. Nor was the craze entirely separable from the intellectual and spiritual life of those years. It was forwarded by the cultivated Pope's, the Renaissance, by the great Protestant reformers, by the saints of the Counter Reformation, by the scholars, lawyers, and churchmen. If those two centuries were an age of light, we have to admit that, in one respect, at least, the dark age was more civilized." So it is possible, it is possible for forward-thinking, intelligent, and imaginative people to be in the thrall of something that's palpably false. Could that something today be the doctrines of our doctors of economics? I suggest to you that it is. I think two winters ago, I live in New York. And on a Friday in January, the National Weather Service issued a forecast for a blizzard. And not just any blizzard. This was to have been the greatest blizzard in the history of New York since the arrival of the Dutch. It's OK by me. I love blizzards. And my wife and I made preparations for this onslaught. And we got ourselves a reservation at a local restaurant with a great picture window. And we arrived Monday, the day of the forecast, storm Monday night, to await this fabulous meteorological light show. And as we sat down to dinner and had a drink and, we couldn't help but notice as the evening wore on, that it wasn't snowing. And it's a lot to ask of scientists-- they write all the time-- the storm did land but 50 miles to the East. But I got to thinking about the nature of a snowflake, as beautiful as it is, I guess I was gonna say, as unique. It is unique. What snowflakes don't do is watch CNBC, and having imbibed the forecast, do their best to confound it through contrary bloody-minded action. That's what snowflakes don't do. But we humans are exactly in that business. Sell us something that's going to happen, well, we make preparations. And in the preparation, we destroy the forecast. It's not going to happen, because we have already taken the action that was predicted, and maybe some other action, besides. Now this speaks-- the nature of humanity and the nature of prophecy-- speaks directly to the business model. The people who make these trillion dollars of weightless, non-corporeal money. N/A I'm going to a favor you with a-- the Federal Reserve has on its payroll 700 Ph.D. economists. 700. I'm gonna say that you need 701 or none. It's not working. And to get a taste of the formative intellects at the Federal Reserve, I invite you to visit any website that lists the scholarly productions of the employees. Here's one. Computing dynamic stochastic general equilibrium bottles with recursive preferences and stochastic volatility. Now if you say those words separately and read them backwards, well, the general dynamic stochastic equilibria model was the model in place in 2006 and 2007, and indeed, in 2003, 4, and 5. And notice that it did not set up any knowledge within the Central Bank of the oncoming events of 2008. None. Now this is relevant, because the people in charge are indeed in charge. They have power. In particular, they have a power over this seemingly most pedestrian thing called the rate of interest. I speak perhaps with a little bit of edge on this. My publication is called "Grant's Interest Rate Observer." What are we going to see? There's no more interest rates. God, interest rates were great. I remember we had them in 1984. But we don't have them much anymore. They are so small, one can barely see them. And in that fact lies a great deal of what-- lies much of what can explain present-day financial affairs. You know, interest rates are prices, critical prices. We use them to set investment hurdle rates and to calibrate risk, and to discount projected future cash flows. They are probably the most critical prices in finance. Yet they are under the thumb of the central banks of the world. Self-awareness is not the strongest suit of our monetary mandarins. Ben Bernanke-- who now is working for PIMCO, is kind of a capital introduction professional, he helps people invest in bonds-- was, as you know, the Federal Reserve Chairman before Janet Yellen. And in the day when he was in office, he gave a series of talks in the public interest at I think George Washington University in the District of Columbia. And in one of these potted talks about the modern history of American economics, he said, 1971, that was the year in which for the first time in a non-wartime setting, the federal government imposed price controls. A very bad thing. Terrible thing. Because after all, he said in so many words, prices are the signals, the kind of traffic signals of a market economy. If you make them all red or all green through federal fiat, why, the traffic piles up the intersections. And that's dangerous and inefficient. Prices, he said in so many words, must be discovered, not administered. This was the man who went on to execute quantitative easing and 0% rates and negative-- well, now they're talking about negative rates. So I think that the critical failure of the present regime in money is the conceit that it is better for us that prices-- these critical prices-- be administrative, rather than discovered. A long time ago in the annals of this-- since I started talking. It seems like a long time. To me, if not to you. My host made kind reference to this product. And this book is a history of the Depression that people generally don't talk about. It was the one that seemingly, as the title says, with some journalistic license, healed itself. The depression healed itself. The outlines of the troubles took this format in industrial production down about 30% between 1920 and '21. From peak to trough. Unemployment certainly in the double digits. It was not registered, but was certainly severe. Stock market almost down by half commodity. Prices down by 40 odd percent. Corporate profits down 90%. It was something. And the government met this with a balanced budget, and as you have heard, with higher, not lower interest rates. Which was perhaps a mistake. But still what proceeded to happen was that markets adjusted. And prices fell. Wages fell. And because wages could fall, profit margins were restored at lower levels of selling prices. So prices came down. Wages came down too. Equilibrium was restored at lower levels of activity. And because things were cheap, profit-seeking individuals sought opportunities. The sent money here for that very purpose. The gold price was fixed. But the cost of mining it fell. And because the cost of mining it fell, profit margins for the miners increased. And they proceeded to produce more of what in a depression the world needs more of, which is money. So automatic forces, or quasi-automatic forces in the marketplace proceeded to do what government action in this particular long-running cycle-- it has been long-running, has it not-- have so far singly failed to do. So in summary, my lamentation is not about investing, which I think is a great calling. Nor is it about the United States of America, which is a pretty good place to live. But rather it is the persistent and-- after the passage of so much time-- almost unnoticed substitution of the visible hand for the much more effective invisible one that Adam Smith talked about. I hope I have not held out the notion of a free market, and of a price discovery as a new kind of garden of Eden. For it was certainly not in the '20s, about which I wrote. This is, after all, humanity we're talking about. If things were so easy, we'd be a great deal richer. I hope, say in conclusion now. You look around this wonderful campus. You see the fantastic things that you all have given to the world. The world has purchased, quite properly. But you wonder where were our forebears all this time? Let us imagine that the year is 45 BC, or wherever the year was that Cleopatra died. And one of her public-spirited, altruistic handmaidens made a deposit of the equivalent of $100 in the Bank of Perpetuity, buying an eternal CD to compound a 2% per annum. And that sum of money, let us continue to imagine, were left undisturbed to present day. Now that would be something. Let's see. This is Google. We can calculate this. I'll do it for you. And you can join me, we'll just compare notes and see what we want to do is 2% compounded annually of 2045. Let's see. I'll do it per capita. 7.6 billion people on the face of the Earth. Carry the 3. Yes. $5.3 billion dollars per Earthling if, if, that sum of money had been left undisturbed, unlikely probably during the Black Death. Somebody might have made a withdrawal. And if the Bank of Perpetuity had in fact been perpetual, unlikely, given the nature of leveraged financial institutions. They're always toppling over, aren't they? And unlikely, given the very human animal himself or herself,. In fact, we're not that good with money. But we can be better. And it seems to me the way forward is that a a paradoxical means of stepping backward and reclaiming the institutions that worked so well the last time the Cubs won the World Series. So, that's my speech. SAURABH MADAAN: Thank you so much. We were having a brief conversation before the talk began. And you shared a couple anecdotes, which I thought would be very interesting for this audience. So let me start with one, if I may. You guys got a shout out in the movie, "The Big Short." And you were mentioning to me that during those days, you got a big pile of documents in the mail. And you had a chemical engineer working with you. And you asked him, what did you make out of this material? And they said, I didn't understand it. And your reaction was-- JAMES GRANT: Yeah. We got a story. No. It didn't make any sense to us. His name is Dan Gertner. And a very smart guy. And as you said, a chemical engineer from his earlier life. And by no means intimidated by complexity. And these documents run thousands of pages. Very complex. But knowing that we didn't know, knowing there was something wrong, set us on the road to persistence, which is always a good road to be on, unless it winds up at a dead end, which sometimes happens too. But we persisted and looked at more of these things. And came to see that there was actually no there there. And one of the ways in which we came to understand that we're on the right track is the pushback and the friction that we encountered on Wall Street from the stories we wrote. SAURABH MADAAN: They were hostile to you? JAMES GRANT: Well, they were-- well, hostile-- yeah. They were. Well, if we had been wrong, it would have been Gertner's fault. But as it were, we were right. So. But once we were summoned over to a friendly talking to at Standard & Poor's-- the rating agency who wanted us to understand as to how very wrong we were, and how unhelpful we were being to the situation. And then we really knew we were right. SAURABH MADAAN: So did additional evidence come in and help you refine the theory? Like, what are some signals? And the reason I'm asking is, in terms of a lot of your audience here and on the video on YouTube is going to be people who are engaged in investing, possibly. Like, is there some sort of pattern recognition that one can employ to be cautious? JAMES GRANT: Well, it's a wonderful question to which there really is no answer. One sees recurring patterns in finance. I think with respect to the Federal Reserve, to the central banks, to the nature of money, to interest rates, I think there is setting up one of the great dramatic moments in finance. There are upwards of $9 trillion worth of securities in the world that yield less than nothing. These are debt instruments, promises to pay money undefined. And you, the investor, pay the issuer for the privilege of-- you could say this as many times as you want. It still won't make any sense. And I think I have in my very hand, I have-- yes I do. I have a quotation from "The Financial Times," a very distinguished London newspaper, that distills the mindset of the market today with respect to investing in fixed income. Quote-- this is from April 15 edition. Quote-- "Some banks, pension funds, and insurers must buy safe government debt irrespective of the price." Close quote. Now is any investment asset intrinsically safe? Is it intrinsically anything? I mean, let me invite you to go back in time, 1984. 1984. So interest rates spent the years 1946 to 1981 going up. It went from 2 and 1/2% at the low in the spring of 1946, to 15% in the fall of 1981. 15%. You could have invested in 15% 30-year US Treasury securities non call for 25 years. Equity returns with no equity risk. You know who wanted that? About nobody. Because they had had 35 years of experience with falling bond prices and rising interest rates, meaning losses. So interest rates began to come down. Paul Volcker was in at the head of the Federal Reserve. And it seems as if he were making good on his vow to kill inflation dead through the mighty, blunt-edged instrument of tight money. It seems as if he were on his way to achieving this. And then comes the spring of 1984. And for whatever set of reasons-- and there are always pretexts on Wall Street. You can always make a story about why something happened. But what did happen is that interest rates went back up again. And for just a moment in the spring of 1984, not so many years ago, you could have invested at 14% for 25 years in US Treasury securities. That was what Wall Street calls the Retest of the Lows. A return to the low F price, the high F yield. That was on offer in the spring '94. And again, very few takers. I was there. And we chronicled this. You couldn't be sure. You thought-- nobody knew that a new cycle in interest rates would last more than 30 years, which this one has. 1981 to date of very low rates. And now people can't get enough of securities in which you pay them. So yes. We've got pattern recognition. Yeah. And one of the patterns that recurs is extremes of behavior and perception that you feel are almost supernatural in their error. You can't believe. People in 1979, '80, '81, were watching bond yields go up from 9%, 10%. When Volcker came in, October 6, 1979, he gives a talk, a press conference. It's a Saturday. Emergency meeting on Saturday. And he announces that owing to the crisis of inflation and of the dollar, that he, Volcker, personally is going to oversee the tightening of money such that he is going to ring inflation by its neck. Or words to that effect. So that was the announcement of intent. At that moment, long-dated treasuries were yielding 9%. As I say, by the time he demonstrated to the satisfaction of the investment community that he was serious, they went to 15%. That was the degree of mistrust of the institution of central banking in the early 1980s. Compare and contrast the present day. The economists at the Fed, to a man and to a woman, virtually, missed, as I say, the biggest event of their professional lives. Yet they have come out of this crisis with greater power, greater regulatory power, greater power over interest rates. They have been the instruments of the levitation of financial assets through their talk and through their actions. Stock prices have gone up and up. Cap rates on real estate come down and down. Interest rates down and down. The world of assets thanks them profusely. But it's a truism that the future promises lower returns the higher the price in the present. It's a truism that is hard to act upon if you're an investor. God, it feels good when it's going up. SAURABH MADAAN: Charlie Munger says something that cannot go on forever has to come to an end. JAMES GRANT: What does he mean? Well, that is entirely true. But I'm here to tell you-- I think Charlie's got a few years on me. But I've been in situations, and have been wrong enough on some things that it seems if things can't go on forever, can and do. SAURABH MADAAN: So you've powerfully made the point of the so-called invisible hand becoming very visible. And you also refer to one of the previous presidential campaigns. What's the solution? Some say break up the big banks. Others have other solutions proposed. What do you think is the way out? JAMES GRANT: I think constructive retrogression in our institutions. What I would like to see is, first and foremost, individual responsibility being restored to Wall Street. There's one financial institution in New York City that did not take money from the Treasury, took no TARP money, took no bailout of any kind, and was virtually invisible in 2008. That was Brown Brothers Harriman, which was founded about the time that Citibank was. My brother has a general partnership in the organization, meaning that the general partners are themselves personally responsible in a pro rata fashion for the debts of the firm. Means not just that their stock goes to zero, but they lose their Matisse, their golden retriever, their house, everything. SAURABH MADAAN: They have skin in the game. More than that. JAMES GRANT: Yeah. So it would be nice, to my mind, to go back to stockholders' liability. But without being punitive, one should insist the people who enjoy the upside ought to be personally responsible, in a leveraged financial setting, for the downside. The downside not just affects them, but affects all of us. So number one I think, is to get away from socialized risk, which I think is corrupting to the Republicans. I mean, it's corrupting to finance. And then I think we have to get away from the Ph.D. standard of monetary management, the discretionary rule by people, who as well-intended and as well-credentialed as they are, are the practitioners of a pseudo science. I mean, they say for instance, they say for instance, the prices must go up 2% a year. That's the verdict of the people who run monetary? Why? Why? Who says? Oh, they say. But they don't explain. Is it just not possible that by creating the extra credit with which to try to force prices in general higher, they create an increment of credit that does great damage to the structure of things in finance and in the real world. I mean, is it possible that by doing this, they create bubbles in real estate? In San Francisco and in New York, real estate values are back to levels from which they plummeted in 2006 and '07. So is this really the way forward? This command and control regime. You know, people tax the proponents of new gold standard. They tax them with, it is an anachronism. Well, it does sound as if it were. Why not bring back the cutthroat rays of the sexton? Except there is a rather subtle distinction between things and methods, as in methods and money. the gold standard is about a defined monetary unit that is a weight and a measure. And around that defined weight and a measure, people, through collaborative means and markets, through the social media of markets, work out their own salvation. Now that sounds kind of contemporary, right? And if you casted the present-day arrangements as command and control, one thinks not of the enlightened 21st century, but rather of say, Poland in 1957, or something. Right? That's command and control. So I would say the anachronism is really on the part of those who would defend rule by these-- I think they are intellectual pretenders. And I think it's high time that smart people began to look into the science of economics and say, or what? What are we talking about? If the rigor of science have to do with its predictive value, and if you missed the biggest snowstorm not by 50 miles, but by 5,000 miles, shouldn't we at least have congressional hearing? SAURABH MADAAN: I mean, I'm going to try and lighten up the mood here a little bit. JAMES GRANT: No. This is good. SAURABH MADAAN: I know you're all fired up. So I was asking you about your-- you had a degree in international affairs. JAMES GRANT: I did. Talk about pretense. SAURABH MADAAN: No MBA, right? JAMES GRANT: No. SAURABH MADAAN: No MBA. JAMES GRANT: I'm like the guy in Nashville who says, can you read music? No. That doesn't hold me back. SAURABH MADAAN: So when I ask you, how did one thing lead to another? And where you are? And you asked me-- I grew up in North India. And he retorted. He said, what did you think were the odds of you working in a company in Sunnyvale called Alphabet? And so you were talking about serendipity. Right? And you also mentioned to me that there's this huge obsession about longevity at the risk of quality and happiness in life. What did you mean by that? JAMES GRANT: Well, I'm going to-- unless it's a breach of copyright. I'm very sensitive on copyright, actually. But I will investigate the copyright implications of my promise to forward you a piece that appeared in "The London Spectator" a couple of weeks ago. It was a marvelous piece. It was written by an octogenarian, I think, who said that here he is, having achieved the modern be all and end all, which is to have achieved a certain age. He has not died, and is biblically allotted 3 score and 10. But he has lived beyond that. Maybe he might be 90. And he says, by the way, it's not so hot. And he enumerates his ailments and his infirmities and his deficiencies. And he says, to young people, no. Eat, drink, and be merry. Know that-- and he's not talking about debauch. He's talking about living in the moment without a contemporary obsession with things that if you were unlucky, will land you at the age of 97. In closing, he said a very, very powerful line or two. Like he said, when I look back at my life, he say, the things that make me smile, the things that gave me pleasure were when I drank too much, and smoked too much, and climbed too high, and fell too far, and tried too hard. So go for it, Google. SAURABH MADAAN: Thank you. This is fantastic. So we're open for questions, folks. JAMES GRANT: Yeah. AUDIENCE: Thank you, Mr. Grant for coming to speak to us today. So a few days ago, maybe a couple days ago, Donald Trump talked about essentially defaulting on like US government debt. And I was kind of surprised that the markets didn't seem to react at all to that at all. Do you think that as we get closer to a possible Trump presidency, that this might actually sort of slay one of the sacred cows? JAMES GRANT: Well, Donald Trump speaks with authority in the matter of default. Dozens of companies, of course, hundreds have defaulted once in modern times. Many fewer have defaulted twice. Many fewer still, three and four times. Trump's Resort and Casino in Atlantic City holds the indoor record for having defaulted five times. So this man speaks with authority on the matter. Now by way of historical preface, the United States has defaulted. We defaulted on promise to pay our debts in gold in 1933 and '34. That was known in the city of London as the American Default. And again in 1971, when Nixon said that no more would be honor promises to redeem dollars at $35 to the ounce of gold. So that was default number two. And there is a default built into the monetary method of trying to achieve 2% inflation per year over the course of a 30-year bond. Of course, 2% loss of purchasing power every year adds up. And you're not looking at much in the way of return in purchasing power. So the default is a defined term. Now, I think apropo of Donald Trump's remarks on Monday, sir, you have to keep up. He recanted that on Monday afternoon. Every day's a new adventure in his policy making. But he's all about negotiating. So I don't know. I mean the way to think about the American public debt, I suggest you visit the Cato Institute website. There's a free analysis available by a very good thinker named Jeffrey Miron. M-I-R-O-N. And in this analysis, he says, let's take the present value of American government promises to pay, that is, the policies in place now, especially medical care, social security. Let us assume those go forward as now budgeted for 75 years. And let us compare the present value of expected tax revenues using assumptions, which of course, might be errant. And compare those to the present value of expected outlays and the present value of expected income for the government. And the difference in the present value is $120 trillion. That's the whole. So that's what they call them. The trade unsustainable, unless something is done. Now Donald Trump wants more medical care. He wants-- to make America great, you have to be healthy. So he wants more of this stuff. And I dare say that his likely democratic sparring partner is going to want more as well. So the question to me about default is rather more nuanced than the Trump Resort and Casino simply not paying and getting really clever lawyers to rewrite the covenants. But I think that some adjustment in our debt burden is in our future. Either through-- I don't know-- through something. Perhaps through inflation, or perhaps through negotiation. AUDIENCE: How do you feel about an audit of the Fed? And if that were to happen, what are your hopes or fears about what might be discovered and what action might be taken as a result of that? JAMES GRANT: I think the audit ought to look at not only the balance sheet and the finances, which I guess are kind of OK. Although awfully big. Trillions upon trillions. But I think an audit ought to go into the assumptions and the analyses that inform the Fed's actions. I think the more sunlight on this institution, the better. I mean, the Fed ought to be regarded as a vast government monopoly. And what every monopoly needs is competition. So as much I'd like to see an audit for the Fed, I would also like to see a simple change in the tax system such that silver and gold would not be taxed as a collectible, but rather we treat it as money in the tax system, whereby gold could compete in the open market for monetary allegiance. There's a company called Gold Money, which is kind of like a bitcoin thing. And it's a very small caliber enterprise at the moment. But why not give it a chance? Let's see what people choose. So yes. The Fed, more sunlight the better, and competition please. AUDIENCE: Yeah. I know a lot of the liberal intelligentsia, like Lawrence Summers, make fun of the gold standard and compare it to witchcraft. And I'm curious how in practice would you bring it back? What would be the steps you would take? What would be the outcomes, et cetera? JAMES GRANT: It's a big question. And I won't tax you and the audience with details which I'm not sure I can do a very good job explaining. But I think the essence would be to define money as a material object, as a weight and a measure, and to fix currency values internationally. So you have to coordinate among the leading countries and to restore fixed exchange rates, which after all, were they regime in place from the founding-- really in this country, the founding to 1971. Our experience with pure fiat currency and with floating exchange rates dates only really to 1971. So it's a very small experiment in the long-running history of money. I think a lot of people are hung up on the evident anachronism of people walking around with a bunch of gold in their pocket. And they wouldn't. Even in the 19th century, they didn't. Bank notes where portable, light. There was a panic in the city of London in 1825. And the authorities, to intervene and to quell this, gave the Bank of England permission to issue one pound notes. Previously they could not do that. The only sovereign gold coins, one pound, were each little tiny things. And people were glad for it. And they didn't really-- what gold does is to serve to anchor value. And in this day and age, when your phone is your bank and your brokerage account, and so many other things, you could deal in gold electronically. It's infinitely divisible in weight. It's one of its many monetary features. So I think what gold would do would be-- what the effect would be would be to create an objective value around which prices would move, rather than now changing the value of money so that prices and wages don't have to move. Now that would be a change that the American people would have to choose to accept or not. It's rather a big change. But we have borne seven or eight years of this sleepwalking, 1 and 1/2% growth. There's something wrong. And I think in the course of auditing the Fed, let's audit our intellects. Let us audit the ideas by which we live, and see if we can't do better. I think at least some serious investigation into the nature of money and nature of credit might help us improve our lots. AUDIENCE: Do you think Ron Paul has been suppressed by the powers that be? Cause well, I mean, this is what he speaks, as you well know. JAMES GRANT: Right. AUDIENCE: Because he would want you to be in his administration. So. JAMES GRANT: We fell a couple of electoral votes short on that one. AUDIENCE: I realize that. I realize that. But he was going to have one, right? So my question is, I lived overseas in Europe for many years. You couldn't even get any information on Ron Paul there. I was an English teacher at the time for bankers, actually. And they wanted to know about him. But even here in America, he gets a lot of people who want following him. But the media squelches him. JAMES GRANT: Well, I think Ron Paul is regarded in the mainstream media as a crank. That is a fact. But one of the things that the World Wide Web has opened up is alternative methods of media, of journalism, of information. And trying to suppress something-- I mean, I guess Facebook maybe is trending the wrong things. I read in the paper. But I think that is evidence. And I think the world finds out. I think that people know everything they want to know about Ron Paul. I don't think it's a conspiracy of silence. I think there is a blockheaded misperception of the way our financial affairs are ordered, and the ideas that inform them. And so how do you deal with that? I think you get better ideas. You get up off your duff and try to make things better, which doesn't sound very imminently successful, does it? But in short, I don't think there's a program against Ron Paul I think Ron Paul personally is actually irrepressible. SAURABH MADAAN: Jim, thank you so much for being so candid and sharing your thoughts with us. We appreciate it very much. JAMES GRANT: Thank you. N/A