What this covers
This episode features Jim Grant of Grant’s Interest Rate Observer on inflation, war, monetary policy, and the long arc of credit cycles. Grant explains why inflation is ultimately driven by monetary debasement and why war, fiscal policy, and central bank actions may be setting the stage for a more persistent inflationary regime than markets expect.
We explore how today’s environment compares to past inflationary periods, the hidden risks in credit markets and public debt, and what history teaches us about AI investment booms, oil shocks, and monetary disruption. Grant also discusses trust in financial systems, the role of gold, and why markets are always harder in real time than they appear in hindsight.
Grant’s Interest Rate Observer https://www.grantspub.com
Topics Covered:
* Why war is inherently inflationary and how it strains the productive economy * The difference between measured economic stability and underlying systemic risks * How inflation shifted from a wartime phenomenon to a permanent feature of modern monetary policy * The Fed’s 2% inflation target as a structural form of currency debasement * Lessons from the 1970s inflation and oil shocks vs. today’s environment * Why inflation is a ratchet that erodes purchasing power over time * The importance of trust in credit markets and growing risks in private credit structures * Public debt, Treasury market dynamics, and early signs of strain in government financing * Historical parallels between AI investment and past technological booms like the internet * The role of gold as a hedge against (and investment in) monetary instability * The durability of the US dollar despite long-term structural concerns * Why investing is always difficult in the present—even when it looks obvious in hindsight
Timestamps: 00:00 Intro and Jim Grant on the true causes of inflation 04:04 Why war drives sustained inflation and current geopolitical risks 08:00 Historical perspective on inflation before the 1970s 12:00 Oil shocks, Volcker, and lessons from past inflation cycles 16:00 Why inflation never reverses and purchasing power declines 20:00 Trust in markets and the foundation of credit systems 24:00 Private credit risks and the modern credit cycle 28:00 Public debt, Treasury markets, and fiscal sustainability concerns 32:00 Treasury auctions, yields, and early warning signs in bonds 35:25 AI capex boom and lessons from past technological bubbles 38:17 Air conditioning, internet bubbles, and delayed economic payoffs 40:00 The Fed, Treasury, and hidden financial interdependence 44:14 Asset allocation, gold, and monetary disruption 48:44 The dollar’s strength and global dominance 53:41 Why investing is always difficult in real time 59:00 Advice on markets, newsletters, and enduring uncertainty
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Grant argues that inflation is a structural feature of modern fiat currency systems and geopolitical instability, not a temporary phenomenon, and that trust in fiscal institutions is deteriorating as the Fed and Treasury pursue unsustainable monetary and fiscal policies that will eventually force a reckoning with public credit.
- The Fed has redefined price stability as 2% annual currency debasement, making inflation a permanent feature rather than a wartime anomaly
- War and geopolitical conflict are inherently inflationary and currently expanding, perpetuating inflation above the Fed's target
- The Fed is technically insolvent under GAAP accounting, holding $6 trillion in securities that obscure the Treasury's true fiscal condition
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William McChesney Martin, Fed chairman 1951–1970, stated in August 1955—when the CPI registered a 0.4% deflation—that 'we can never recapture the purchasing power we have lost,' reflecting a generation focused on currency debasement risk rather than deflation risk, a concern shaped by postwar inflation from World War II and Korea.
“The date is important. Uh, what he said was, quote, uh, we can never recapture uh, the purchasing power we have lost... in August '55, something uh, striking happened uh, uh, in that month, the CPI registered a 0.4% decline.”
Until the mid-to-late 1960s, inflation was assumed to be impossible without war; wholesale prices declined between 1820 and 1930, and the Fed chairman in 1958 invoked this statistic to justify concern when inflation briefly exceeded 3%, but inflation became a secular peacetime problem only after the shift to fiat currency and 'PhD standard of improvisational monetary policy' replaced the gold standard.
“until the mid to late 1960s, people in this country assumed there was no inflation. There could be no inflation without war. Um nor had there been. Uh the wholesale prices between like 1820 and 1930 had been declining... What happened was uh the paper dollar and the PhD standard of improvisational monetary policy.”
Milton Friedman and Henry Kaufman of Salomon Brothers in 1984 represented the concentrated bearish view on bonds, with both predicting that Treasury yields would reach new highs, making the 14% level look like a potential test point in an ongoing bear market.
“Milton Friedman said they're on their way to make a new highs. Henry Kaufman of Solomon Brothers There's no greater uh There was no greater authority than he on the credit markets on the debt markets. So, there was a there was a a a heavy and well-informed concentration of bearish opinion”
When Grant started his publication in 1983, the Continental Illinois Bank had just failed (first wave of too-big-to-fail), treasury yields were rising toward 14%, and the CPI was printing at 4%+, creating nine percentage points of real yield in long-dated Treasuries—an extraordinary opportunity that the market did not stampede to buy due to the prior 35+ years of rising yields (1946–1981).
“when we started uh in 1983 and uh I I'll tell you what looks so easy in retrospect but was so hard in prospect. Uh Uh we'll shift now to the uh spring of 1984 and uh the Continental Illinois Bank had just failed... treasury yields were were backing up... When treasury yields briefly touched 14% in the spring of '84, the CPI was printing at 4% plus but not 14%. There were about nine percentage points of real yield on offer”
In 1984, President Reagan declared that the US had 'just passed the $1 trillion mark in public debt' as a dire warning, yet the US has since far exceeded $1 trillion; gross public debt is now well over 100% of GDP and creeping toward 100% net public debt, showing that fiscal warnings have proven premature.
“and uh and uh 1984 Ronald Reagan gets gets uh orders up some TV time and gets in front of the American public and says uh "All you have to know about the state of our public credit" or words to this effect is that we have just passed the $1 trillion mark in public debt. $1 trillion. This turns It turns out there was a great deal of ruin in a nation, President Reagan. You should not have worried that. Well, we have well past the trillion-dollar mark and as a percentage of the GDP, the gross public debt as opposed to the net is well over 100% and that is creeping up to 100%”
The Fed implemented quantitative easing by paying interest on reserves to commercial banks to prevent created money from flowing into the economy and causing inflation—a procedure used in the 2010s and early 2020s and ongoing to date.
“the Fed um uh paying these interest rates to commercial banks uh so that the money the Fed created would not get out into the economy and precipitate an inflation. That That was the story of the Fed's operating procedure in the teens and the early '20s and indeed a little bit into present day.”
The dollar is 'America's greatest export'—it costs nothing to produce, the world still wants it, and since 1973 it has been uncollateralized and faith-based yet has come to dominate world portfolios, representing an extraordinary creation.
“the dollar to give it its credit this is extraordinary this extraordinary creation, right? It's it's it's it's America's greatest export. Cost nothing to produce the world still wants it. Um since August 15th, 1971 or latest since 1973 has been without collateral uncollateralized. It's it's a faith-based currency purely. And yet it has come to dominate the world.”
Trust is the foundation of credit markets, and historically trust was far more critical before deposit insurance and 'too big to fail' policies, when lenders and borrowers had no recourse to the public purse during market problems, making counterparty credibility essential.
“trust is uh well, it's the foundation of the credit markets... when there was no Federal Deposit Insurance, when there was no too big to fail, when there was no expectation that the Fed would implement another you know, another round of QE to forestall the central uh bump in the road, uh trust was ever so much more important”
Inflation is a product of corporate oligopoly, labor union monopoly, greed, sloppy fiscal policy, and too much money chasing too few goods, but the one invariantly true cause is war, which overstrains the productive apparatus and necessitates printing money to finance destruction and killing.
“Inflation is a product of corporate oligopoly of labor union monopoly. It's a product of greed... One thing that is forever invariably true is that war is inflationary. War over strains the productive apparatus. It is... Its purpose is to destruct and kill, and print money to finance those activities.”
Liability Management Exercises (LMEs) involve clever lawyers spiriting collateral from one subsidiary to another, removing it from creditors who believed they had ironclad claims via loan documents, representing pervasive double-dealing and bad conduct in modern credit markets.
“You've heard about these liability management exercises LMEs in which one set of clever lawyers um succeeds or at least attempts to remove collateral from one subsidiary of uh a borrower to another spiriting that collateral away from the debt holders the the creditors who thought that they had through the um fine print of the loan documents had call on that an ironclad call on that.”
The dot-com bubble (1997–1999) involved massive hype and bidding for internet securities followed by remorse, but eventually the visionaries were validated—just not when they expected, illustrating the pattern 'first comes the bubble, then comes the payoff' with a critical caveat: timing is nearly impossible to predict.
“but in 1997, '98, '99, there was a lot of um hooray and uh a lot of bidding for securities and then a lot of remorse. But the uh uh the visionaries were validated as uh as they just knew they would be, but just not when they thought they would be.”
In March 2020 when the pandemic began, the federal government responded with lockdown (Fauciism) and the Federal Reserve responded with massive QE, purchasing treasuries and junk bonds at 0% funding costs, yet treasuries did not rally—they behaved like 'a storm at a port' rather than a safe haven.
“in March 2020 when they the bug bit and the federal government uh reacted with Fauciism and with uh uh with Powellism... the Federal Reserve under Chairman Powell gave us massive QE and uh buying of treasuries and junk bonds and what have you and 0% funding costs. But what's interesting about that juncture was the treasuries did not rally... treasuries were not a port in a storm but kind of the opposite storm at a port.”
When evaluating massive AI capex build-out (hundreds of billions to trillions of dollars), history teaches two things: first, be careful financing marginally profitable businesses with debt, and data centers appear to be not very profitable enterprises; second, new technologies deliver initially more splash than macro or microeconomic results, but if any good, will pay off later.
“Got two things. What one is that um uh be careful about uh financing especially debt financing with marginally profitable businesses. And data centers uh uh look as if they are not very profitable enterprises. And the second thing is that um a new technology uh delivers initially more splash than macro economic uh results. Or even microeconomic. But and but the uh the uh uh the technology if it's any good uh will pay off later. So, first comes the bubble, then comes the payoff.”
Paul Volcker, in a January 1971 speech at the Conference Board, claimed 'the momentum of inflation has clearly been checked,' but missed the Middle East wars of the early 1970s, the subsequent oil shock, the escalation of the Vietnam War, the Fed's timidity under Arthur Burns, and the uninformed monetary policy wandering under G. William Miller.
“The date is in 1971... January 14th, 1971. The momentum of of inflation has clearly been checked... 8 months before the United States backed out of the Bretton Woods... What did he miss? Well, he he missed um uh the um uh the Middle East wars of the early '70s. He missed the subsequent oil shock in later '70s.”
In summer 2008, during the height of the credit crisis with Bear Stearns hedge fund failures and collapsing mortgage and corporate debt markets, oil prices simultaneously worked above $100 per barrel, creating a paradoxical juxtaposition of inflationary and deflationary symptoms never before witnessed, demonstrating that oil price shocks alone are not dispositive causes of inflation.
“in the summer 2008, oil uh worked above $100 a barrel... how can you have an inflation with the bottom falling out of the of the mortgage market and in the corporate debt markets? It was a little curious juxtaposition of inflation and deflation or inflationary and deflationary symptoms that I'd never seen.”
The first movie theater to install air conditioning became immensely profitable until competitors caught on, at which point it returned to normal profitability; Montgomery Ward chose not to air condition its stores while Sears did, and Montgomery Ward lost and never regained market position, demonstrating that technology adoption is competitive and doesn't generate persistent excess returns.
“the first movie theater that was air conditioned was was became immensely profitable until others uh caught on and then it was not so profitable anymore... Montgomery Ward chose not to air condition their stores, Sears did, Montgomery Ward lost and never regained it.”
The Fed chose not to post operating losses on its income statement but instead arranged for the Treasury to absorb the losses and agreed to resume paying dividends to the Treasury when 'the arithmetic works again'—a departure from standard GAAP accounting and a form of implicit debt subordination.
“the Fed um chose not to post on its income statement but rather to uh wash away by saying that um uh the Treasury is uh absorbing them and we will uh resume paying dividends to the Treasury when we are good and ready, when the arithmetic works again.”
Air conditioning (1950s) is a historical example of a transformative technology that changed human migration patterns and had profound importance—enabling habitation of Houston, Montgomery, and Washington DC in summer—yet air conditioning companies never saw valuations 'run away to the upside'; benefits were widely distributed among consumers, businesses, and manufacturers.
“Air conditioning is a is a It's an interesting uh episode because it uh here was a technology that changed human migration patterns. It was profoundly important, I mean... the air conditioning companies and never the margins and the margins were were good and and the valuations of the stocks were okay, but they were nothing they never ran away to the upside, but uh but the the benefit of the invention was widely distributed among consumers, among the businesses that employed it, and among the manufacturers that produced it.”
A Treasury 20-year bond auction failed in 1976 or 1977 during a ferocious bear market in bonds, but the Fed stepped in the next day and bid for the bonds, making the auction appear a success retrospectively, showing that Fed intervention can mask failed auctions.
“There's a Treasury auction failed in like 1976 or 77. It was a 20-year auction... the 20-year auction was orphaned and the Fed came in the next day and it looks like the Fed was the one that bid for the bonds the next day and the auction was a great success.”
Adam Smith wrote to a young American correspondent during the Revolution that 'there is a great deal of ruin in a nation,' meaning that vast resources allow a nation to survive considerable mismanagement before collapse becomes apparent.
“years and years ago indeed many years ago Adam Smith was in correspondence with a some young person and the young person was American during the American Revolution... Adam Smith said, "Ah, yeah, yeah, yeah." And he said, "Yeah." Uh there's a great deal of ruin in a nation.”
In a properly functioning market economy, you are never supposed to have a permanent franchise; competition erodes all advantages, so newsletter writers should not expect permanent competitive moats.
“in a properly functioning market economy. You never supposed to have a permanent uh, franchise. You know, we were uh, it was One time I walked into a a big uh, you know, hotel uh, um, um, meeting room and uh, give give a talk to the crowd and I was greeted by somebody in the same line of work and he says, "Hi, are you uh, right about to be wrong or are you wrong about to be right?”
The $6 trillion in securities held by the Fed should be viewed as preventing these interest-paying obligations from competing in the market and instead nestling them into the warm, welcoming arms of the Fed, thereby disguising the true fiscal condition of the Treasury.
“look at this this great big clump of interest-paying obligations and to realize that it's that it's not out there in the market having to compete with other borrowers. It is nestled into the warm, welcoming arms of the Fed, thereby disguising the true fiscal condition of the Treasury.”
The credit cycle is fundamentally cyclical: after panic or recession, lenders become chastened and only say 'no'; gradually confidence returns and lending resumes; eventually someone lends too much with no adverse consequences; other examples of excess follow; eventually the cycle goes too far and boom—another event and back to the chastened phase.
“The credit is cyclical. It's forever cyclical. You know, then the credit cycle begins with um um uh after a recession or after a panic or something and all the letter lenders are chastened and contrite and they all It's like a uh the morning after the night before they they can only muster the strength to utter the word no. No. No. No. No... the cycle works on and on and then at the length somebody does lend too much but there's no adverse consequences for that one example of excess and uh other examples duly follow and at length we go too far.”
The Fed's independence is 'mythical' because the Fed is 'deeply in debt to the Treasury,' and the central bank's monetary accommodation of Treasury borrowing is a form of implicit debt subordination masquerading as policy independence.
“with respect to the Fed's independence, it's kind of mythical. Cuz the Fed is deeply in debt to the Treasury.”
We are entering a period in which the public credit of the United States—once an invisible, assumed-safe concept—is becoming 'an actionable, tradeable concept' with 'a tangible expression in rising yields, especially for longer duration securities,' signaling the end of the era when US credit was taken for granted.
“you can make the case that we are therefore um entering a period in which uh the public credit is no longer an empty phrase, but rather an actionable, tradeable concept. And that the public credit of the of the United States is going to have a tangible expression in in rising yields, especially for longer duration securities.”
AI-powered content aggregation creates a 'business problem' for newsletter writers: carefully drafted, exquisitely researched, and edited pieces wind up in AI 'mixing bowls' and get distributed throughout firms, disrupting the intellectual property model of original journalism.
“What do you do about your terms of service when your uh carefully drafted and exquisitely researched and uh edited and copyedited piece winds up in somebody's um uh AI uh mixing bowl and it's distributed throughout the firm uh, to enhance the um, the dislocation of what you do for a living. It's a It's It's uh, It's a interesting business problem.”
World readership has declined materially, and newsletter writers face extraordinary competitive pressure from free Substack content, leading to compression in the paid newsletter business model and putting pressure on publications like Grant's Interest Rate Observer.
“the world is rather less inclined to um uh uh to read than it had been, which I must say is discouraging if you're in the business of writing for the world things for the world to read. Uh the competition is ferocious. There's so much good stuff. And it is posted on Substack at a remarkably unbeatable price of free.”
Consumer confidence surveys show lows and inflation expectations are above 4%, indicating considerable discontent in the land, though by official statistics unemployment is low and prices are rising at levels less problematic than historical precedents, creating a gap between measured indicators and lived experience.
“There was a survey of consumer confidence and it has plumbed lows and uh inflation expectations, I think, are above 4%. So, there is some discontent in the land... By the numbers, everything's kind of fine, right? And unemployment as measured is low, prices as measured are uh rising. Inflation is uh problematic, but nothing like the problematic inflations of yesteryear”
By any standard except the Fed's own DIY accounting, the Fed is broke; however, neither Scott Bessent (Treasury Secretary) nor Jerome Powell believe the Fed is insolvent, or if they did, they believe it wouldn't matter—reflecting a policy consensus that institutional insolvency is irrelevant when institutions control monetary policy.
“the Fed is um by any standard except its own DIY accounting, the Fed is broke. And the Treasury is the holder of the um of the insolvent party's debt... But of course that doesn't really matter to Scott Bessent or to Jerome Powell. They think that each they they are quite sure the Fed is not broke or if it were, it wouldn't matter. And nor does it seem to matter to the world.”
If the Fed were forced to liquidate its $6 trillion securities portfolio, it would create severe problems for the Treasury market and indeed for the solvency of the government, suggesting that the current arrangement is fragile and dependent on the Fed's continued participation.
“If the Fed suddenly had to liquidate $6 trillion of securities, of course, it would be a problem for the Treasury market and indeed for the solvency of the government.”
The world may be twigging on to the likelihood that there will be no resolution of U.S. fiscal difficulties and that all the warnings about fiscal crisis that have been dismissed will eventually be vindicated.
“perhaps Justin the world is twigging on to the likelihood that there will be no resolution of our fiscal difficulties and that all of the little boys who are crying wolf are going to get their day of vindication.”
Suppressed interest rates in 2020, 2021, and 2022—and especially 2022—combined with Fed forward guidance and confidence in future rate cuts, gave a 'green light for excessive leverage,' enabling private equity and other entities to over-leverage with the assumption that rates would fall, but when refinancing time arrives, they face higher rates with no exit.
“what confidence in the Fed and in its promises and in its forward guidance and what this gives us is a green light for excessive leverage, right? So uh people availed themselves of it and now comes the time to uh take private equity and then other private entities public and that reliquefy the uh private equity promoters and the lenders. Or the time comes to roll over the debt at a more advantageous rate because people have assumed that rates would be falling, right? But uh the markets are not welcoming to new equity issues from highly leveraged, for example, software companies.”
Some long-dated Treasury security auctions are not attracting enthusiastic attention from buyers, with weaker bidding on 20-year issues, indicating deteriorating market demand for government debt.
“some of these auctions of long-dated securities are getting a little bit... are not attracting the enthusiastic attention that the Treasury might prefer. This is the What's the volume of buying a 20-year issue for example? It's a very likely bid for.”
The US Post Office is suspending payments to its pension plan because it will run out of money in the next 12 months and is raising stamp prices again, exemplifying how unprofitable government-funded operations continue despite structural insolvency, raising the question of when trust in the US government's creditworthiness will erode.
“the post office is suspending payments to its pension plan because basically it's going to run out of money like in the next 12 months or something like that. And it's also rais- raising the price of the stamp again... it kind of makes me like worried that, you know, here we have I Listen, the post office obviously there's operational and financial issues that every organization has, but it's just like it's a US post office running out of money needing to be probably backed by the federal government at some point.”
Grant has been on record for ~100 years (through the publication's history) describing the current era as 'the debasement trade,' with the visible manifestation minimal during the 'great moderation' (1990s) when inflation measured perfectly and it was contentious to argue hard-money positions.
“We have been on record of saying that the debasement trade in is in fact about 100 years old. And um for for many of those decades uh um for some of the decades there was there was scarcely you know, visible and there there there's the the so-called great uh uh great moderation of 1990s um you had to be a a terrifically um contentious hard money guy to uh pick a fight with the trend in monetary affairs”
Everyone in the economy gets up in the morning and tries to do better, and stability results when their efforts are coordinated through reasonable fiscal and monetary policy and when people don't all share the same idea at the same time about some imagined outcome.
“five 300 million people get up in the morning and try to do better and um and the extent to which their efforts are coordinated through uh reasonable fiscal and monetary policy and um and to the extent that um everyone doesn't have the same idea at the same time with regard to some particular imagined outcome, that if those things are in tune, I guess we are looking at stability.”
All periods of financial history appear equally hard in prospect even if they appear easy in retrospect; knowledge of history is helpful unless it isn't, and historical analogies can be facile and lead to prideful misapplication of arcane knowledge to predict the future.
“It's always hard. It's always hard. And, um you know, the And and knowledge of history is is is helpful unless it isn't. Historical analogies can be so facile, and you can um and you can uh pridefully you can realize that you're the only person in the world who has read certain abs- arcane books on the financial history of the And, um kind of um parade that knowledge as if it were the key to the future, which I'm here to tell you it's sometimes is not.”
Gold serves as an investment in monetary disruption rather than a hedge against it, based on the understanding that monetary disruption is 'ongoing' and explicit, as central bankers openly state their mandate to diminish the value of money through 2% annual inflation.
“It serves not so much as a hedge against uh monetary disruption, but investment in monetary disruption. And um we know that the monetary disruption is ongoing because the central bankers tell us that they're in the business of disrupting uh What are they disrupting? They're in the business of um of creating sufficient credit such as the value of money forever diminishes.”
The Federal Reserve has, in Orwellian fashion, unilaterally defined price stability as 2% annual currency debasement—a tax imposed on all citizens without democratic consent or voting, starting with Janet Yellen and adopted by other central banks and international bodies.
“in Orwellian fashion, the Federal Reserve has defined price stability as 2% debasement of the currency price is like a tax that the Fed has unilaterally imposed. All right, everybody chip in 2 cents out of every dollar every year. I don't know. Do we Do we Do we vote for that? Nope. No, it's what Janet Yellen said and then everybody said, Yeah, yeah, it's good asset.”
Grant respects what the world's embrace of the dollar means for US respect and credit, and attributes dollar dominance as much to the Declaration of Independence, Bill of Rights, and Constitution as to Federal Reserve policy or US military power.
“I do respect um what the uh world's embrace of this faith-based piece of paper means for the dollar's respect for United States, you know, they um uh the Declaration of Independence and the Bill of Rights and the Constitution are mighty document. I mean, I think they are perhaps they're as much responsible for the ascendance of the dollar and the dominance of the dollar as anything the Fed has ever done”
People in the newsletter/commentary business go through periods of being 'very smart' followed by periods of being 'not at all' smart, reflecting the inherent difficulty of forecasting and the vicissitude of being wrong about timing.
“you go through periods of um, of being very smart and then not at all. And uh, so uh, that's an answer to that question.”
The future involves judgment, luck, and unpredictability, making the best outcome 'to get out of bed in the morning and see how wrong you were,' and the job of financial commentary is fascinating because it combines being wrong with discovery.
“So, it's it's all about judgment and as I mentioned, luck and some of that, too. And, um it's what makes it all so fascinating, you know, in such a um and such a um an adventure to get out of bed in the morning and see how wrong you were.”
Geopolitical conflict is front and center, and inflation was problematic even when central bankers were not trying to foment it; now both geopolitical pressures and monetary debasement combine, suggesting inflation will perpetuate well above the Fed's 2% target.
“inflation was problematic even when the central bankers were not trying to foment it, which they are... I think that uh that inflation was problematic even when the central bankers were not trying to foment it, which they are. We We tend to overlook this, but it is a fact that uh in Orwellian fashion, the Federal Reserve has defined price stability as 2% debasement of the currency... I think we are we that is in fact in progress right now.”
Inflation is a ratchet that never goes back—it only goes up—and mainstream concern is not about super-core PCE readings but about purchasing power lost since 2020, a real wealth destruction that ordinary working people experience while the Fed and Wall Street obsess over narrow inflation indices.
“People Only Wall Street worries about the uh uh the adjusted uh super core uh reading of the PCE... The mainstream concern is the purchasing power that people have lost since 2020. Um it's it's a ratchet. It never goes back. It always goes up.”
The dollar's armor plate is 'the idea of America' and the sovereign credit of the United States is protected by that ideological foundation, though the Treasury's fiscal solvency is a 'slightly different thing' and remains vulnerable to degradation.
“I think it's the idea of America. And uh I hope that never goes away, uh but as for the solvency of the Treasury, that is a slightly different thing... it's still it's still armored by the idea of America. That's that's the armor plate of the dollar”
One must be careful about projecting one's own expectations, worries, or hobby horses onto current events, because sometimes things just happen without following a pattern—like the Yankees losing to the Athletics—rather than being part of a coherent narrative one has constructed.
“you have to be careful about uh about projecting your own I say this to this to myself as much as to anyone who's listening, uh your own expectations or worries or hobby horses um uh onto current events. Sometimes they it's got nothing to do with what you thought was going to happen. They just happened, you know, it's it's not part of a pattern, it just It's you know, it's like the like the like the Yankees lost against the Athletics. Well, why? I don't know, they played.”
Gold will periodically sit and disappoint fans for 15–20 years, nearly bankrupting miners who expanded during prior bull markets, but then gold will catch a bid when central banks lose confidence in paper and recognize the US is 'over its skis fiscally,' leading to preference cascades for gold as a reserve asset outside the dollar.
“every once in a while um gold will sit there for 15 20 years and disappoint its fans and um nearly bankrupt the miners who had expanded too much during the last prior bull gold market. Gold will um uh will catch a bid and uh the world will think, 'Wow, that's these dollars there certainly are prolific.'... the United States is seemingly over its skis fiscally. We should perhaps lay in some gold we central bankers... And that's what happened in 2024 and 25 and less so this year”
Treasury yields have been 'sticky to the downside,' hovering around 4.25-4.40%, not at the 3.5% level that historical patterns might suggest, indicating that sovereign wealth funds and international investors are no longer automatically fleeing into long-dated US Treasury securities for safety as they once did.
“recently uh uh uh treasury yields have have have been uh kind of sticky to the downside have seemingly the 10-year is a is a 430 or 440 or 425 but it's not it's not 3 and 1/2. Um and in times past perhaps people would have nations would have uh uh sovereign wealth funds would have fled into the dollar and into long-dated US Treasury securities uh for the undoubted safety they afford.”
When everyone has the same idea—that stocks are going to the moon, that there's no such thing as inflation, or that war can be waged on the cheap—things tend to be disruptive, and right now many disruptive ideas are in circulation.
“when everyone has the same idea, for example, that stocks are going to the moon or uh that there's no such thing as inflation or that um uh war can be waged on the cheap, those things um tend to be disruptive. And I think we have a lot of disruptive ideas in circulation.”
There is a world of war and nation-states are 'at each other's throats' pursuing geopolitical contests. Trump's proposal to acquire Greenland is misguided; if one is worried about blocks of ice, worry about the ones off Alaska. The real concern is the Baltic Straits, which would have serious consequences for energy security.
“the world seems to be at each other's throats. Nations do... Trump once Greenland and Venus wanting something. That fool, Greenland is not the problem. It's the Baltic straits that would have you to If you're If you're worried about blocks of ice, worry about the one off of Alaska. So, uh geopolitics is front and center”
Currently the economy is in a protracted period of very easy money and deeply entrenched complacency that has become habitual, creating the conditions for a credit cycle peak.
“But we are in a protracted period of uh of very uh um easy money and of deeply entrenched uh complacency if complacency can become entrenched. I suppose it certainly it become can become habitual.”
The Treasury and Fed operate in the present as they do, and the market has 'suspended judgment and criticism' of how they're managed; the Treasury 'gets through the day' and borrows again, and Treasury coupon yields are not yet 'catastrophically high,' though the Congressional Budget Office warns that when coupon yields exceed growth rates, the trajectory becomes a 'terminal fiscal crisis.'
“we have suspended judgment and uh and criticism of the way things are managed, and the Treasury gets through the day, and then it borrows, and rates are certainly um not yet at a catastrophically high level, although you read the uh Congressional Budget Office, and it says, "Watch out when coupon yields are higher than the rate of growth in the economy." That's the uh that is the road to uh uh to a terminal fiscal crisis.”
One conceivable future scenario is that Trump was right about destroying the Iranian theocracy opening gates to peace and prosperity in the Middle East, oil returns to $30-40/barrel, there is no more war in that region, and AI delivers productivity enhancements allowing 4% real growth—which would make current fiscal concerns appear trivial in retrospect.
“They could think Didn't you see it? That Trump was right. That the destruction of the theocracy in in Iran was going to open the gates to a a wonderful age of peace and prosperity in the Middle East. Oil was going to return to the levels uh 30 and 40 hours a barrel... And AI was going to deliver results that uh destroyed this nascent secular bond bear market because it uh it enhanced productivity to the extent that uh the Treasury deficit battery more. That we were embarked on an era of 4% real growth.”
Jerome Powell told Harvard economics undergraduates that quantitative easing has no unintended side effects—'it's all upside'—reflecting a radical revision in the Fed's approach to monetary affairs and a striking departure from William McChesney Martin's 1955 concern for purchasing power preservation.
“Powell said um "Yeah, we have to be worried worried about inflation." And he said also he said that that uh quantitative easing, there's no there's no um unintended side effect. It's all upside.”
Grant's Interest Rate Observer has been in publication for 43 years (as of the interview), suggesting a four-decade tenure in financial commentary.
“We're in our 43rd year. We'll be completing 43 year. Yeah.”
Loss of faith or trust or confidence in the U.S. fiscal and monetary regime may be driving recent gold purchasing, but it could also be one of these mysterious preference cascades where an idea suddenly becomes fashionable without clear origin.
“This is one of these eruptions that can be put down to a loss of faith or trust or confidence in the fiscal and monetary regime of the United States or it might just be a one of these mysterious preference cascades. You don't know where it comes from, but every once in a while that people say, 'Oh, yes, we This is the idea.'”
In 2024 and 2025, central banks were diversifying out of the dollar and laying in gold, but less so recently because Turkey was actually selling the gold it had laid in to fund its domestic needs, disrupting the trend.
“that's what happened in 2024 and 25 and less so this year because Treasury The Turkey was actually selling the gold it had laid in to fund its own domestic needs.”
Grant's magazine wrote in 1997 about 'the economic consequences of air conditioning' as a provocation, noting sock puppets, too much fiber optic cable, and the Nasdaq's flyaway action—drawing historical parallels to contextualize the internet bubble.
“We wrote something Grant did in 1997 and the headline was on the economic consequences of air conditioning... the provocation was the uh uh was sock puppets and um and too much fiber optic cable and uh of all the uh uh of the um uh of the flyaway action of the Nasdaq.”
Grant and his team were 'slightly early' on the dot-com analogy in 1997—a recurring pattern for them—but being early is validated by subsequently spending time in air-conditioned offices, making the point somewhat tongue-in-cheek.
“and we were slightly early. Um not for the first time... That's okay. You're in an air-conditioned office for being slightly early.”
Grant's Interest Rate Observer does not set up as a professional asset allocation consultant; instead, it looks at securities 'ticker by ticker and CUSIP by CUSIP' opportunistically, seeking longs and shorts, and has no pretense to great original ideas on asset allocation.
“Well, you know, we don't set up as uh as professional consultants on asset allocation. We don't We look at securities uh uh kind of ticker by ticker and CUSIP by CUSIP. And Evan Lorenz, who's the deputy editor and a It's a terrific securities analyst. Just just uh uh opportunistically looks for longs and shorts. And we don't pretend to have any great original ideas on uh on asset allocation.”
Grant will provide the hosts with as many single dollar bills and hundred dollar bills as they want, just to keep their eyes on the sidewalk—a humorous closing remark suggesting that keeping attention on the ground level (details, specifics, micro-level facts) is more important than grand strategic thinking.
“I'll give you all the hundred dollar single dollar bills you want just to keep your eyes on the sidewalk.”
As someone approaching 80, Grant notes that when dropping an object on the sidewalk, younger people quickly retrieve it; at his age he's reached the '$5 bill stage' of selectivity about what items to retrieve based on effort required.
“It's just a fact. So, you happen to drop something on the sidewalk. Might be a book, might be a $5 bill, maybe. And before you can muster the will and the flexibility to retrieve that object, somebody under the age of 40 comes walk and plucks it off the sidewalk... And I'm a I guess I've reached the $5 bill stage in life.”