The Trouble With Prosperity: The Loss of Fear, the Rise of Speculation, and the Risk to American Savings [Hardcover]

James Grant (Author)

Book Description

Release date: October 22, 1996

In Boom and Bust in the American Century, James Grant tells why the financial prosperity of the 1990s is destined to collapse. This is a book about cycles of optimism and pessimism, of bull markets and bear markets, and of orthodoxy and heresy. Boom and Bust in the American Century is sophisticated financial writing by a gifted author and analyst at the top of his form.

Editorial Reviews

Amazon.com 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 (5 customer reviews)
• Amazon Best Sellers Rank: #684,476 in Books (See Top 100 in Books)

More About the Author

James Grant founded Grant's Interest Rate Observer, a twice-monthly journal of the financial markets, in 1983.

He is the author of five books on finance and financial history: 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 & Giroux, 1993) and The Trouble with Prosperity (Times Books, 1996), and Mr. Market Miscalculates (Axios Press, 2008). John Adams: Party of One, a biography of the second president of the United States was published in March 2005 by Farrar, Straus & Giroux.

His latest book, "Mr. Speaker! The Life and Times of Thomas B. Reed, the Man Who Broke the Filibuster," will be published in May by Simon & Schuster.

Mr. Grant's television appearances include "60 Minutes," "The Charley 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 Affairs, and 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.

Visit the Website for Mr. Speaker! The Life and Times of Thomas B. Reed The Man Who Broke the Filibuster at www.mrspeakerbook.com

Most Helpful Customer Reviews

11 of 11 people found the following review helpful

4.0 out of 5 stars Grant again shows mastery of market history January 30, 1997

By A Customer

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

3 of 3 people found the following review helpful

5.0 out of 5 stars Book Review from the Aleph Blog January 23, 2010

By David Merkel

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.

The trouble is, the likelihood of the Federal Reserve rescuing troubled financial institutions raises the odds that the institutions will get into trouble. It skews the payoff to financial executives, and makes them more willing to take risk, because the institution will not be under threat if they fail.

In The Trouble With Prosperity, Grant walks us through:

* The puzzle of the markets in 1958, given the rise in interest rates and inflation
* A tall building that characterized the troubles of the Depression.
* The Japanese real estate and stock bubbles, and their deflation (still early in 1996)
* The S&L crisis in the early 90s
* Willingness to sponsor speculative ventures in the early 1990s, with a focus on gambling.

My opinion: low Fed funds rates foster speculation in healthy assets. Lever them up more, because we can. Ignore risk, and focus on the income one can generate today. Of course, the eventual risk is that the US ends up in a liquidity trap similar to the which the Japanese have been in for the last 17 years. Of course, the US economy is more flexible than that, but the risks are still significant.

Don't view soft FOMC policy as a panacea. Eventually we will have goods inflation as a result. For now, the market is rejoicing in an accommodative Fed. Enjoy it while it lasts, but inflation is coming.

3 of 3 people found the following review helpful

5.0 out of 5 stars Excellent Account of Speculative Folly January 31, 2009

By Jon Thomas

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. We cannot do away with the business cycle, but we should be able to let a little air our of financial bubbles instead of pumping them up in Greenspan fashion.

All in all, a well written, very informative, and very humorous book.
Highly recommended! Hopefully, the publisher will put out a new edition of this book to deflate the bubble of excessive prices for copies of this used book.