Jim Grant on Obstreporous Interest Rates and Fed's Control

The Fed's Struggle with Interest Rates

• 💡 Jim Grant describes short-term interest rates as "obstreporous" because they are ill-behaved from the Federal Reserve's perspective.
• 🎯 The Fed aims to control the U.S. money market, but is troubled when less regulated rates move outside their preferred orbits.
• ⚠️ Recently, some rates have risen higher than the Fed desires, indicating a potential shortage of reserve dollars in the system.

The Fed's Response and QE

• 📈 In response to rates straying, the Fed announced a resumption of Treasury bill purchases at $40 billion a month, which Grant calls "QE" despite the Fed's denial.
• 📉 This action is seen as a reaction to the Fed's inability to influence longer-duration yields, leading some to question if the Fed has lost control.
• 💥 A similar situation occurred in September 2019 when a key interest rate spiked to 10%, leading the Fed to begin buying securities, a move that preceded the current inflation.

Fiscal Affairs and Market Concerns

• ⚖️ Grant discusses an upcoming Supreme Court decision that might strike down a presidential ability, but predicts it will be a "non-event" due to market preparation.
• 🇺🇸 He highlights the "incourageable nature" of U.S. fiscal affairs, citing a presidential plan to give $1,776 to armed forces members, funded from general revenue rather than specific sources like tariffs.
• 📉 The market is increasingly focused on the U.S. public credit and the potential risks associated with fiscal irresponsibility from multiple administrations.

AI and Financial Markets

• 💰 Grant touches on the concept of "hyperscale money pits," comparing historical examples like the Great Pyramids to modern AI investments.
• 📊 He references a report suggesting potential oversupply in AI relative to demand, advising caution with companies like Oracle.
• ⚠️ The discussion concludes with a reflection on the long-term fiscal trajectory and the inevitability of reaching a "cliff."