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The Trouble With Prosperity: The Loss of Fear, the Rise of Speculation, and the Risk to American Savings Hardcover – October 22, 1996

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Editorial Reviews Review

Risk, according to James Grant, is our enemy. The current, seemingly endless run-up of the stock market is bound to crash around our ears at some point, sooner rather than later. The flood of cash that is lifting the current consumer economy stems from imprudent credit decisions by banks and, by extension, by the largest bank of all, the Federal Reserve. The flight of capital from bonds into mutual funds is only the most visible symbol of an America that has lost sight of fundamental economic forces. And so on. The writer and publisher of Grant's Interest Rate Observer, Grant is a born contrarian, directing investors into commodities markets, which have been flat for 15 years, and away from the booming stock market. You can disagree with his prognosis, but it's hard to argue with his diagnosis. The boom of the 1990s can't last forever.

From Booklist

The publisher of the small but influential newsletter Grant's Interest Rate Observer and author of Money of the Mind, proclaimed by London's Financial Times and Business Week as one of the best business books of 1992, here expresses concern that too much risk has been eliminated from the financial system. He concludes that, though currently prosperous, the American economy is stagnant because marginal enterprises are protected from failure. Grant believes that success and failure are part of the natural, cyclical order of things and that that order has been disturbed, particularly by the Federal Reserve Board's manipulation of interest rates. His beliefs are grounded in the Austrian school of economics, the tenets of which Grant lucidly explains. David Rouse

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Product Details

  • Hardcover: 348 pages
  • Publisher: Crown; 1st edition (October 22, 1996)
  • Language: English
  • ISBN-10: 0812924398
  • ISBN-13: 978-0812924398
  • Product Dimensions: 9.6 x 6.5 x 1.2 inches
  • Shipping Weight: 1.3 pounds
  • Average Customer Review: 3.8 out of 5 stars  See all reviews (6 customer reviews)
  • Amazon Best Sellers Rank: #562,589 in Books (See Top 100 in Books)

More About the Author

James Grant, financial journalist and historian, is the founder and editor of Grant's Interest Rate Observer, a twice-monthly journal of the investment markets. His new book, The Forgotten Depression, 1921: the Crash that Cured Itself, a history of America's last governmentally unmedicated business-cycle downturn, won the 2015 Hayek Prize of the Manhattan Institute for Policy Research.

Among his other books on finance and financial history are Bernard M. Baruch: The Adventures of a Wall Street Legend (Simon & Schuster, 1983), Money of the Mind (Farrar, Straus & Giroux, 1992), Minding Mr. Market (Farrar, Straus, 1993), The Trouble with Prosperity (Times Books, 1996), and Mr. Market Miscalculates (Axios Press, 2008).

He is, in addition, the author of a pair of political biographies: John Adams: Party of One, a life of the second president of the United States (Farrar, Straus, 2005) and Mr. Speaker! The Life and Times of Thomas B. Reed, the Man Who Broke the Filibuster (Simon & Schuster, 2011).

Mr. Grant's television appearances include "60 Minutes," "The Charlie Rose Show," "CBS Evening News," and a 10-year stint on "Wall Street Week". His journalism has appeared in a variety of periodicals, including the Financial Times, The Wall Street Journal and Foreign Affair. He contributed an essay to the Sixth Edition of Graham and Dodd's Security Analysis (McGraw-Hill, 2009).

Mr. Grant, a former Navy gunner's mate, is a Phi Beta Kappa alumnus of Indiana University. He earned a master's degree in international relations from Columbia University and began his career in journalism in 1972, at the Baltimore Sun. He joined the staff of Barron's in 1975 where he originated the "Current Yield" column. He is a trustee of the New York Historical Society. He and his wife, Patricia Kavanagh M.D., live in Brooklyn. They are the parents of four grown children.

Customer Reviews

3.8 out of 5 stars
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Most Helpful Customer Reviews

11 of 11 people found the following review helpful By A Customer on January 30, 1997
Format: Hardcover
Mr. Grant's book is good and again he demonstrates great knowledge of the history of financial markets. His writing can be a little bit dry at times, making it sometimes difficult to follow the thread of argument in each chapter. Grant gives a compelling case that the cyclical nature of booms and busts isn't over and suggests several times that these cycles are really beneficial to a country's economic health. He suggests that efforts by governments (notably the Japanese) to suppress the effects of natural market cycles inevitably lead to disaster. I think, however, his thesis is undercut by his own research that suggests that moderate economic expansions yield only moderate economic contractions. Several times he suggests that we should strive for stronger expansions, thereby ultimately leading to more severe contractions, but never really provides a compelling case as to why. In other words, Grant does not present persuasive reasons as to why moderate economic cylces are inferior. In any event, this is another first rate book by Grant. I strongly recommend it for those people who think markets (and economies) only go UP
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4 of 4 people found the following review helpful By David Merkel on January 23, 2010
Format: Hardcover
In principle, I make a pittance off of any book sales from clicking on the links in any review that I write. But I will write about books that are "out of print" as well (no money there); whether in print or out of print, my goal is to serve readers by bringing important investment ideas to their attention.

Presently, I am reading Money of the Mind, by James Grant, but I have also read The Trouble With Prosperity, which is important to understanding our present circumstances. Both analyze monetary and other economic policies in the past, with an eye toward what it implies for us today.

In The Trouble With Prosperity, Grant's main theme is what happens when monetary policy is perverted from trying to preserve purchasing power, to trying to assure a perpetual prosperity. He wrote this in 1996, when the US was recovering from the severe Fed tightening in 1994, which resulted from lax monetary policy 1991-1993, where the Fed funds rate was stuck at 3%.

As with most things, James Grant is right in direction, but early. Back in 1996, he could not envision a 1% Fed funds rate, much less the mysterious hypothetical helicopters of Chairman Bernanke. Capitalist economies are quite resilient, and can survive considerable mismanagement. Today we are far closer to what he worried about eleven years ago.

A central bank trying to assure continued prosperity will always be biased toward inflation. How the inflation manifests is a function of demographics. With a younger population, goods inflation will be stronger (buy more, save less), and asset inflation for an older generation (buy less, save more). At the same time, such a central bank will be biased against major losses in financial institutions.
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3 of 3 people found the following review helpful By Jon Thomas on January 31, 2009
Format: Hardcover
I first bought my paperback edition of this book back around 1996 when it came out. Being somewhat uninformed at the time about the wonders of modern day finance, I read it with something less than full comprehension. The author, James Grant, assumes that his reader has a fair acquaintance with the ways of Wall Street. I've re-read it at least twice since then, gaining greater understanding with each re-reading.

The book holds up remarkably well. As far as I can see, all of his Cassandra-like warnings about the speculative excesses of Wall Street in the 1980's and 1990's prior to 1996 are every bit as applicable to today's present financial disaster. American investors--and probably most human investors--appear to have gnat like memory spans. Economic history appears to be a field of human understanding little studied or understood by the investor community. Optimism blooms eternally in the soul of the American investor.

Grant holds that the business cycle is unlikely to ever be superseded despite claims to the contrary, "That it is really different this time...." This is a claim that is asserted throughout financial history. If you want good financial advice and insight, I would say Mr. Grant has a very good track record if the prognostic accuracy of this book is any indication. The author does seem to have a rather romantic and sentimental attachment to the old gold standard financial days. He never comes out and recommends it for this modern age, but I do detect a flirtation. I can't go there with him on that one, though. And he seems to have little faith in financial regulation. I'm really not in agreement with him on that, either. We certainly can do better than we've done in the past few decades of de-regulation.
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