James Grant, Founder of Grant’s Interest Rate Observer

Published on26 SEP 2019

James Grant discusses his perspectives on the forces shaping financial markets, and why the insights of Walter Bagehot, the Victorian-era banker, journalist, and editor of The Economist remain deeply relevant in today’s economy.

On the modern relevance of Walter Bagehot: “There's an inherent tension between the desire of the management of the stockholders of a leveraged financial institution to earn great ROE on the one hand. On the other, there's a need to conserve the franchise and, to if not erect guardrails, certainly to imagine what they ought to be... The tension was basically resolved by the banks holding as little cash, as gold was then called, as possible, depending on the Bank of England to furnish that as a lender of last resort. Bagehot's most important contribution to finance was not to so much invent the doctrine of the lender of last resort, but rather to make it proverbial.”

On the state of monetary policy: “I believe that the post-1971 era will be seen as an experiment and ultimately an unsuccessful one. And I think that the contradictions of the system of monetary stimulus, intervention, socialization of risk, the ever-fattening balance sheets in the world's central bankers and the great moral hazard that these institutions introduced into the market place, is trouble.”

Explore More Insights