March 10, 2012

James Grant speaks about why the central banks are like kids

If Ron Paul wins the US election in 2012, he's going to replace Ben Bernanke - the current Chairman of the Federal Reserve - with James Grant. James Grant is the founder of the Grant's Interest Rate Observer, and he has also written a couple of books. Here he is giving a speech with the topic "Reset or Recovery? The Macro-economy and Value Investing":

From the speech, we can learn that James Grant is critical to the current actions of the US Federal Reserve (Fed) and other central banks in other countries. He's saying that they are like kids with a chemistry kit - they are experimenting violently with the economy - without being sure about the outcome of their experiments.

The original purpose of having a central bank was to provide money to the banking system in times of crises. But today, the central banks also seems to care about the stability of the US Dollar against other currencies, unemployment, price stability (inflation and deflation), and so on. But isn't it better if the market decides about the value of a currency against other currencies - and not a central bank?

In the end of the video, James Grant provides to us some investment opportunities:
  1. Gold - he suggests that gold can increase since people still have confidence in their central banks
  2. Farmland - it seems that hedge fund managers who don't trust the central banks are buying farmland in the US. They who own farmland don't want to sell it because they can't invest their money with higher returns anywhere else because of the low interest rates

Source: Wikipedia, FundManagerNews