Global Macro Monitor

This is a must view, folks.

The first half of the interview, which aired yesterday, is dominated by a discussion of the natural resource constraints the world will be facing in the next decade.

The real macro gems begin at 29:01 minutes in as Grantham discusses his ability to see market bubbles, which he attributes to nothing more than looking at “just the numbers.”  He also takes a refreshing long-term view of policy prescriptions noting there is no evidence that debt and low interest rates can affect long run GDP growth.

He exhorts we need to focus more on real variables such education reform and productivity.  That is, structural reform.   Using monetary policy to temporary inflate the S&P500 is another story, however.

He notes that low interest rates are inflicting “great wounds” on retirees and transferring wealth from the poor to the rich, who, by the way, don’t spend  it.

Money quotes:

Economic theory doesn’t work with human beings.  We are far too messy.  (31:52)

Bernanke has inherited a more completely academic view that markets are efficient. (32:38)

That (Japan real estate bubble ) was the biggest bubble in history of the world… and right behind it was the Japanese stock market bubble. ..that went to 65 times earnings.   (32:50)

Our long-term argument has nothing to do with the market…The U.S. market is not too bad [value] for the great franchise companies…the balance of the market is very expensive.  We assume profit margins.. will go back to…the trendline.  (40:10)

Bernanke is whipping this donkey that can only grow at 1 percent, this economy, because he thinks it’s a race horse that should be growing at 3.  So he is going to keep on whipping this donkey until it either drops dead or turns into a race horse, which is unlikely.  And I am betting on dead.  So it is a very unsafe situation to have the most powerful person in the economic world, by far, the chairman of the Fed. (44:24)

There is no room…to believe that increasing debt has anything to do with long-term growth.  (47:01)

By keeping interest rates low you are transferring money away from retirees who spend every penny and are really hurting, and, by the way, there is far more of them every year now than there ever was when economic theories were being panned out.   You take money from them and who are the beneficiaries?   The guys who run the hedge funds; and the banking system in general; and speculators; and corporations theoretically can use it to build. But they’re building less now than practically anytime in history.  There is no major capital spending boom going on.   (50:03)

I’d rather stimulate the economy directly through government spending than I would like to play games with the monetary system and games with the interest rate, inflicting great wounds on retirees and so on…transferring wealth to people who won’t spend it.  We are transferring wealth from the poor to rich by keeping interest rates low.   (52:20)

In other words, the policies are the problem.    Good stuff.   Take the time or, at the very least, fast forward to minute 29 to get his macro views.

By the way, we are huge fans of Charlie Rose but it’s clear in this interview he doesn’t understand macroeconomics.

Click here full interview.

(click here if picture is not observable)