I Lecture Jeremy Grantham

Last week, fund manager Jeremy Grantham’s investor-letter titled “Night of the Living Fed” made a splash in the financial media. However, I have assigned a grade of “F” to his paper.

Grantham’s argument may be summarized as follows: “The Fed blows up destructive asset bubbles because they are stupid.”

But is it that simple? One of the Fed’s mandates is to strive for “maximum employment”. But was it the Fed that “fast tracked” NAFTA through Congress? Did the Fed award “most favored nation” status to China? Did the Fed import millions of immigrants? Did the Fed export 42,000 factories and millions of manufacturing jobs?

No, it did not. But the Fed has a mandate from Congress to deal with the fallout.

In 16 pages of extensive Fed criticism, Grantham never even mentioned The Conundrum. By this omission, he is asserting that mass-scale Chinese bond purchases had nothing to do with causing the housing bubble. And so, his neglect of this “800-pound gorilla in the room” consigns his work to the “gratuitous Fed bashing” category.

Grantham barely even mentions the trade and immigration policies that have forced 41 million Americans onto food stamps.

Note to Grantham: Your Fed-bashing is not helping.

Grantham also unbelievably blames the snowballing trade war with China on the Fed. From page 11:

“And all of this stems from the Fed and the failed idea that it can or should interfere with employment levels by interfering with asset prices.”

Preposterous! Maybe Grantham believes that we should just accept these “employment levels”? Just lay back and take it? Grantham also doesn’t even mention our gigantic trade deficit with China. Does he really think that our trade relationship with China is sustainable?

The Fed had nothing to do with the policies that have delivered us into this state of affairs. The Fed also does not have the power to reverse said policies. And the Fed’s tools are obviously not very effective in dealing with the fallout. Of course, when the nation follows simultaneous policies of de-industrialization and mass immigration, there is no solution.

The Fed is not the cause of our problems, and people like Grantham who make it the whipping boy, contribute to the decline of this nation by deflecting attention from the real causes.