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Helicopter Money, Larry Summers, Shane Parrish, Ben Barnanke, Bernie Madoff


Guy Spier

October 28 · Issue #5 · View online
Father, Husband, Value Investor and Author

Why are Interest Rates so Low?
Post the 2009 Financial Crisis I was more than a little flabbergasted by the quadrupling of the Fed’s balance sheet.
And why would I not be?
The oil crises of the 1970’s are etched into my memory as an era of high inflation and economic misery.  Even Warren Buffett wrote about it in his classic article on how “Inflation Swindles the Equity Investor” Breaking the back of double-digit inflation in the UK needed no less than an Iron Lady. And if it had not been for Ronald Reagan’s fortitude, Paul Volker might well have been thrown out of office before his job was done.  
Our reward for the principled defeat of inflation and the return to sound money was  the go-go 80’s. And before long Stanley Fisher freed the Bank of Israel from political meddling - as did Gordon Brown at the Bank of England. 
It seemed as if a great battle had been won. From then on, sober central bankers who carefully controlled the supply of money would ensure endless prosperity for the rest of us. 
The Economist might well have called it “a new golden age of crunchiness”. 
In this light of this history, how could I not have been appalled as the Fed went on the most enormous spending spree that the world has ever seen? 
And at the European Central Bank, we have gone from the first governor - a crunchy Dutchman to Claude Trichet, a frenchman - to Mario Draghi - who each seem to have progressively walked back the policy gains of the prior era. 
I have now come to understand why this was a sensible thing. That Ben Barnanke’s historical grounding in the Great Depression helped him and Hank Paulson to understand how dangerous it would have been not to expand the money supply. 
Nevertheless, I was still quite certain that it would result in significant inflation. 
After all, how could all the money sloshing around the system not be inflationary?
But here we are seven years later, and we still have no inflation to speak of.
Which all begs the question of the moment:  
Why are interest rates so low? 
Ben and Larry’s answer to this has been a bit of a revelation to me.
A Savings Glut?
Larry Summers: Secular Stagnation
Sapiens: A Brief History of Humankind
US Money Center Banks
This all started with my review of the US money center banks. Back when I bought them, I had a natural expectation of at least some inflation - the absence of which, as Larry puts it - has confounded us all.  
As I did with American Express and the Credit Card industry, I’ll eventually produce a memo on the Money Center Banks. Let me know here if you would like a copy
MIT's Billion Price Project
A History of Interest Rates
Some Great Investors
I have found that the best place to keep up with the moves of Great Investors is my friend John Mihaljevic’s newsletter. You can see the latest issue and subscribe here:  Another excellent letter that recently arrived is my friend Ori Eyal’s. Here are some more:
Howard Marks in Conversation with Stephen Schwarzman
Tom Russo on Remy Cointreau and Kweichow Moutai
Paramés publishes memoirs.
Some criminals
Bernie Madoff Explains Himself.
Why Do White-Collar Criminals Commit Their Crimes?
Shane Parrish's interview with Peter Bevelin
Much as I would have liked to be friends with Charlie Munger, I am not. But Shane Parrish has published this wonderful interview with Peter Bevelin - who is friends with Charlie Munger. 
I am sharing it here with Shane’s permission. 
Shane Parrish produces an extraordinary piece of Brain-Food that arrives in my inbox once a week. I’m far worse off for every week that I miss reading it, and my wisdom about the world increases by a small, but meaningful amount each time I take the time to read it. 
It is well worth subscribing.
Farnam Street
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Guy Spier, 18 Rämistrasse, Zürich 8001