Enter your mobile number or email address below and we'll send you a link to download the free Kindle App. Then you can start reading Kindle books on your smartphone, tablet, or computer - no Kindle device required.
To get the free app, enter your mobile phone number.
The Trouble With Prosperity: The Loss of Fear, the Rise of Speculation, and the Risk to American Savings Hardcover – October 22, 1996
Customers who bought this item also bought
What other items do customers buy after viewing this item?
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.
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
Top customer reviews
when Eugene Fama says "the markets are efficient" , one can conclude one has found their religion.
Jim Grant does an excellent job making a mockery of the 'efficient markets hypothesis' in this book,
especially in recounting the fluctuations in the transaction valuations of the 40 Wall Street building in the 1980s and 1990s.
Investors meet the junction of the real World and academic theory ( 'efficient markets hypothesis' ) in this book,
read it and decide for yourself which makes more sense.
The book's flow jumps between different times and situations, I think this is done to show
how they relate and in so doing Mr. Grant tries to show readers how historic events are related,
because of this I did not find this to be a casual read.
Read this book because Bill Gross mentioned it in a Nov 20 2014 post; The Trouble with Porosity and Prosperity.
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.
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.