H/T to Joe of http://www.valueinvestingworld.com/ for the find.
Jim Grant on Squawk Box yesterday, talking about our monetary system (a favorite topic of his, but he always offers some great insight each time he speaks) Seth Klarman is a big fan of Jim Grant. Here is a story of colleague of mine who worked for Grant told me:
Jim and Seth Klarman have known each other at least since the beginning of Grant's Interest Rate Observer. Jim tells a story of how Seth Klarman interviewed him in 1983 about the publication (what his focus would be etc) before he would commit to paying $250 a year for a subscription.
Below is video and transcript:
jim grant editor of grant interest rate observer. it's an independent contrarion minded journal. you must have rushed on the set. you look fine. you don't have a whole lot of makeup on. thank you. the information is more important. than the look.we'll do like kramcri kramer kramer. jim i asked the questionearlier, is this the final day of reckoning for a world binging on debt? is it playing out on that? no. friday will be the final day.oh, god. i mean for a long time you've warned about -- a lot of our prosperity sits on top of a lot of paper money? we are, on monday coming up on a very important anniversary which is the 40th anniversary of the passing of this institution called brentwood woods which was the monetary arrangement bywhich if you were a favored bank you could exchange your dollars for gold at a fixed-rate and that anchored the monetarysystem. before that there were other aspects that resembled the gold standard. before that there was the real mccoy, you could choose paper or gold. we got away from that. for 40 years that experiment is ending, the experiment is unsecured, they called fiat money. that's not so remote source of a difficulties we face. not so much that we're in a world of chaos, we're in a world of comeuppance. of comeuppance. having to do with our monetary arrangements. this is not divine will so much as monetary error which will be identified and rectified and fixed.what do we do and how can we -- gold -- but it will involvedevaluation. we have seen the dollar was one 35th of an ounce of gold. it's now 1776th. absolute bottom. the dollar has undergone a terrific devaluation against that monetary asset which over time has tended to hold its value namely gold bullion. for example. we've been talking about nothing at least until a week ago then the united states credit -- this country has the dubious privilege of paying their bills and the currency that they may print the dollar which privilege has been swell until you begin to count the debts that we have been allowed to so easily run up. because we have paid our bills in dollars for which there's no collateral, no gold behind it, we have sent these dollars to asia, asians have scene them right back to us in terms of investment. in europe all these countries gave up their printing press. and that's why they were in the world of hurt. the banks are levered 40 and 50-1 and the assets they hold do not support that kind of leverage. that's the immediate problem.now tremendous most problem in europe is the same remoteproblem in this country with regard to monetary risk, there's no check, there's no balance on monetary emission, so it was true in the day that the world had reciprocal monetary system if one country were in deficit the country would adjust its deficit based on a real monetary unit. the united states has run trade deficits for 25 years in a row. we have spent our dollars, asians absorbed the dollars, sent them back to us in treasuryinvestments. we have not been able to check our progress because no one -- why would we? we can finance it with -- tell the opposite side of the story. asians have wanted our dollars.right? they have -- if they were no good why in a free market did they take them? it's not a free market. the chinese have suppressed -- agree with that. but they wanted our dollars. they did. everybody tells us in some grand religious protestant epicterm of america over spending. here's the story. america had the benchmark currency of the world and everybody wanted those dollars in order to liquify themselves. you can tell the same story in terms of the british sterling and same story in coin of the realm in rome. it was the standard of the world.people wanted those dollars. what's different, steve, is united states dollar is the currency. people seem to want it. note that after the construction of these mountains that we live in a world of immense distortion. we can't seem to pay them. we get downgraded. how much better it would be if we settled our accounts timely and in a monetary unit that's no one nation's --everybody talks about america as a corporation. if america were a corporation, and i nod the big paper that was written on that, how much of the current deficit would go into the capital account and not counted as a deficit. this downgrade of the unitedstates is a bit of a parlor trick. the united states, as anenterprise, the united states of america enterprise is aaa.there's not enough a in the scrabble box to describe the ideas.but as an institution that has a reserve currency crush thisinstitution is in financial trouble and thabts what s&p -- go back to the european bank. is it a fact 40 to 50 and what's covering --mark to market. deutsche bank is a heavily levered institution.14? so they haven't done any of the things that have happened.so when we say -- leverage and banking in europe is much higher. not smoke turning into fire. 40 to 50 to one in terms ofleverage. a number that has something to back it