-- at 9:00, prime minister's questions. reviewing the history of national emergencies. as president trump considers making that decision on the u.s. and mexico border. >> this week, on q&a, author and columnist james grant. he talks about the state of the u.s. economy and the threat posed by our ever-expanding national debt. >> james grant, when will you stop worrying about the $21.5 trillion of debt? started worrying at about 1956. that i am here

without the british. i know that the british are coming with respect to the debt. >> with what way will we see it? it does not seem like anybody cares. >> it is remarkable. i am losing1993, the name. perot was running for president. he calls the public to crazy aunt in the attic that nobody talks about. people did talk about it. it turns out that the debt is not such a problem. the clinton said he could see the possibility of extension every last penny of it by the year 2015. nonetheless, in the 1990's, people talk about it. they stopped talking about it fairly recently. on wall street, that is a good

sign that something is possibly about to happen. when people lose interest in it is a good company or topic or trade. that is a starting point for investigating. papersmething is in the and on the tip of everyone's tongue, that is a reason to stay away. respectave silence with to public debt. brian: what do you do for a living? james: i read about the markets. brian: how can we see it? on publicwrote a piece debt. the claremont review and i publish a book every now and again. living by writing about marcus, interested observers. that is much too expensive for

some of the people out there. indeed, i could see their point. brian: what does it cost now? james: about 1300. brian: what do you get? toes: you have to try identify all that is good and bad. we are looking for things that are out of favor and cheap. we are looking for things that overpriced, overhyped, possibly corrupted in some fashion. we also offer comments on the general state of the world, principally with regard to monetary affairs. the rate of inflation, interest rates and the like. brian: when did you start the newsletter?

james: 35 years ago. i was having a tough time. my then employer, there was one intramuraliteful political arguments in the staff. i was alongside of it. in the staff. i was alongside of it. not because of was some tiff. that was my reason for leaving. i didn't want to be rewritten by the editors of forbes or basra journal, a -- wall street journal, as good as they are. preliminary the miss comprehension that the world did not have enough to read. it turns out the world has a great deal to read.

brian: did you ever think you were not going to make it? james: it was three years before i could take a salary. my wife was an investment banker at lehman. when lehman was still solvent. there was a time in the 1980's when i took the envelopes to be mailed to the subscribers and left them in the back of a taxi cab. there went the liquidity of the buisiness right there. we overcame is growing pains. averagehat is an investor do for a living? james: for average, they buy low and sell high. we have many who invest of their

own account, independently. it is a publication for people with a serious interest in investing. brian: why did you write a book about john adams? james: because i could not stand the financial markets in the late 1990's. i had been smitten by john adams high-mindedness, his selflessness, his inextinguishing th patriotism -- inextinguishable patriotism. i said, i will step away, nights, weekends, and the fourth of july, i'll step away from wall street.

about the life of john adams. one,as called party of alluding to his for mindedness. -- foremindedness. it is ever so much better to have written than to write. i look back on that with great pleasure. i enjoyed his biographical company. of the in the company individual. he never leaves your side. he goes with you nights and wee kends. ed of the was sicken presence of john adams. i never did. i got tired of typing, but of his company i never tired. brian: who introduced you to john adams? james: i suppose a library and

n indiana.rian i a well-known historian, robert farrell, has been on this program and was your professor. what do you remember of robert farrell? ines: we were in a town indiana with smaller than 500 people. it was springtime. the windows were open. travelled thoroughfare in bloomington. a car boomed by, a hopped up mustang, made its presence known. professor farrell, casting a disapproving glance at this

vehicle, turned to the class and ruminated. theonder how many books cost of that car would buy." i had the privilege of writing his obituary. he was a lifelong mentor. brian: what was special about him? james: his generosity with respect to his students, and his tireless scholarship0 he wrote -- scholarship0 he wrop. he wrote 60 or 70 published books. he never quit. news breaking.re interviewed if you him before or after his monograph on douglas macarthur. but he ran a proof that douglas

macarthur was kind of a fake with regard to a medal of honor citation from the first world war. de was a remarkable scholar an a generous professor. brian: how does some but he born in new york city find their way to indiana's university? james: you may not know that i was a french horn player. i joined the navy reserve which ofmitted me twoo two years active service and i chose to take those two years after one semester of college. i got back and said i will pick up where i left off. i was admitted to this mecca of french foreign school in indiana. i'm not sure how you got around after the navy, but i saved my

money. i bought a 1957 percent is ben's mercedes-benz sl. can you imagine the prospect of a 22-year-old veteran with that car? said, i have been accepted as a french horn layer at th -- player at the university of indiana. he said, oh really? i've never been. many years in the navy? quoted as have been saying that you had five years. brian: [inaudible] years i was only two

active but it was such a .ormative experience brian: what years were you in the navy? james: 1965-1967. brian: did you go near vietnam? james: near but not in. i would have been at greater risk driving the family forward manning athan i was .38 caliber antiaircraft gun. we never got shot at. three or four of my friends were aboard the hornet. we were off south vietnam, we watched the ships delivering the

missiles that shot down american -- it was important. it was not dangerous. we got back to long beach, california, home port. we felt that some of us ought to do more for this war. three or four of my friends reenlisted. they shipped over for the privilege of serving another four years on slip boats. that was another aspect of the navy in those days. brian: another name in your book barzun?es scholar ofas a great

the history of culture. he wrote such things as darwin, marx , wagner. i had the great pleasure of taking a class -- when i was in indiana, i took a course of something called international relations. i never figured out what it was about, but i was able to read books for two years. the most preferable -- pleasurable was under the barzun.p of jacques he was present for the opening night of the firebird in paris. i think 1913. notorious opening performance. here is a man who was a contemporary of stravinsky and so many cultural figures.

his scholarly presence. i went to see him once. i got into my brooks brothers blazer, brand new, tie. i went to see professor barzun who had an office in one of the dignified buildings. this was 1971 or something. i was the only guy on campus wearing a necktie. wasnds of ours -- he somewhat distant. he did not mean to be chilly or patronizing, but he came across as it. i asked him how he became self-red. ad.

he said, why? read. brian: how long until -- james: i wanted to be in the way of writing. whether it was for books or newspapers or something else, i wanted something to do with the written word. applied to about 100 newspapers. it was not a great year for journalism. i did apply to these dozens of papers. the baltimore sun said yes. it was the only one. i went and started writing about ands and obituaries covering other things. brian: then from that to your own newsletter. james: yeah. brian: what were the high moments?

if you were pitching your newsletter, what were the high moments of where you predicted what the market would do? james: our greatest moment was the events leading up to and culminating in the trials of 2008. we had a very early read on what was going on in the housing business. we knew that houses were overpriced, that the mortgages had been packaged in such a way as to render them un-credit worthy. the mortgage-backed securities, these seeds of financial engineering that turned out not to be seeds at all. foremindeduch leaders such as alan prinprenie, we got an imminent read on the

securities. i sat my analyst down and said, please, study this and tell me what it says. he said, i can't figure it out. story. a-ha, we have a not many people tried to figure it out but we think we did. many of the things we said half-way came true in 2010 and 2008. we turned properly bullish in late-2008 and 2009. i have been known as someone, who, quite fairly, had too many false positives. 7-2009.a good 200 brian: other than the market

numbers, which have gone quite high since that time, what has happened to all of the language, the credit defaults, swaps, derivatives. all of the things we talked about in 2007-2008. have we recovered? james: some of the esoteric things have come back. these structures have been retired for good. brian: like what? james: come to think of it, i'm going to withdraw that. i just heard that the collateralized bond obligation is back. there is something called the collateralized loan obligation which is a confection of bank loans. they are called leveraged loans. leveraged means debt. loan means debt.

it's like botanical garden. every garden is botanical. or existing houses. all hosue exist -- all houses exist. but you can get a different part of the loan. you can get the riskier part, the safer part. they are meant to be safe now because they were safe in 2008. what is different is the underwriting standards of these loans have diminished substantially. the clo's are not so safe, we think, even though they were safe then, for the average person. brian: this is it for the investor reading your newsletter. who is cheating less? james: we are, collectively,

willing, or at least inattentive victims of what is going on on wall street. wall street is out there. one branch, the investment management business seeks to buy low and sell high. the securities-manufacturing arm, the investment bank, brings pieces of paper to market, stocks, bonds. they want to sell something. there is a third branch, the investment research branch. they are not disinterested rantrvers of the scene as g strives to be. they are selling something as well. means to sell you something. it falls to the customer to realize that and to be on one's guard. can't absolve all of

wall street. wall street is venal for a l iving. wall street is what it is. , mostly an a name infamous name. wall street is an e pithet. what we ought to be more on guard about are the institutions in the federal government that that arently denied, part of the treasury, the securities and exchange commission. these are set up as benefactors. of the public and increasingly they are not so. the federal reserve rode to

our rescue in 2008. lowest imposed the interest rates, by some measurs, es, since the middle ages. worldwideeasures, imposed attes were the lowest in 3000 years. what have they done? investors intod taking risks they might not otherwise have taken. if you are getting nothing from a treasuries bill, you say i might take the advice of the chairman of the federal reserve the011, who said, russell-fitzgerald index -- that is an insider thing, russel has well,been doing very

advising people to think about advancing -- investing in stocks. who will tell the risk-averse savers when it is time to get otuut? you ask, who are the culprits? i think the public, in its inattention, is one, is guilty to our collective financial sins. i think our financial stewards are guilty on wall street. i think that the government is guilty as well. so nobody is guilty, right? [laughter] wrote in the weekly standard article that $7 trillion of gross federal debt came on the books in 1986.

$5 trillion was the grand total in 1996, $10 trillion in 2008, 2017.0 trillion in as a journalist, i would say, how is that possible? we did not93 years, spend $1 trillion in debt. how is it possible that in the last 20 years this thing has gone completely -- james: it's the facility of borrowing, the ease of borrowing. we live in a remarkable era. the dollar is not a thing. it is increasingly a concept. you can fabricate a dollar for the cost of nothing. keyboard of the federal reserve and you can materialize dollars. it used to be that a dollar was,

at least in law, defined as a weiighght of something. of an ounce of gold was a dollar. brian: why did nixon go off the gold standard? james: it was expedient to do so. this facility has given us th ee means of borrowing and servicing debt. so too has the collapse in interest rate since 2008. doctrine, that the government ought to be interventionist, ought to be our help-meet, catering to our needs. the government ought to be there for us. that is the doctrine of statism.

i'll give you an example. this comes from paul bol qvist's new autobiography. he describes washington in the 1970's. oneaid, washington has four-star restaurant. , washington today is chock-full of the most people.ly rich he says "i stay away." statism is the concept of ideas that mobilizes wealth in washington and imperils the legislation that has governed so

much of our lives. s?member vivian callum she was a tax protester who got started in 1945. end the war was going to federal income tax withholding. all businesses had to do the bookkeeping on behalf of the government. dowdy connecticut entrepreneur. she said, why should i do the government's work? there is a constitutional provision against servitude. she sued the fed. the government did not cotton to this. she lost this battle, obviously. now we look to april 15 when the government will give us back some money.

before she died, vivian said the internal revenue service is a hydra-headed monster. if you call wrong that to 75,000 pages. that is statism. the all-enveloping grip of the government on our lives. brian: you wrote in that article, if statism is the debt-facilitating idol of the , growth is the debt-rationalizing ideology of the right. programs conservatives preach, correctly, that only a strong

economy can produce the goods and services with which to meet tomorrow's vast entitlement bills. we happy fiscal warriors forget that the government has a balance sheet as well as an income statement. they carelessly overlooked the risk that the worsening federal finances themselves could undermine economic growth. carterduring the administration, the rate of inflation was nearing double digits. it had not yet achieved that dubious level. the treasury deficit was seeming to run amok. it's.s. had aggregated pro -- abrogated five years earlier its promise to pay gold on demand. the u.s. had difficulty financing our debt.

40% of whatbt was it is now. people talk about these things. it is somewhat tedious. if you were to look at the debt in the hands of the public, not the debt that the federal government holds in one hand and counts as a liability on the other, if you x that out, if you look at the debt in the federal reserve, debt in the hands of the public, that was 35% of gdp. people will tell you, the debt is not a problem until it reaches some threshold. they'll say 102% of gdp. no, the debt is a problem when

the creditors will not lower the loans. brian: i don't know the latest numbers, the number of dollars on the average person's credit card is something like $9,000. james: i don't know that figure. brian: is that bad, good or in different? brian: when seeking to determine --james: when seeking to determine whether debt is a lot or just right, you have to look at the capacity. the average american would have trouble coming up with $500 in the event of an emergency. as a nation, we are short on walking around money. $9,000, if that's the figure, seems steep. brian: what are the warning signs that things are going in the wrong direction, for you? james: when the interest rate

that america pays in relation to the interest rate that other countries pay to service their debt. when our rate rises compared to others, that is a concern. brian: we are above them? james: we are above germany. i think we are above the rate that the italians pay. the italians are having difficulty within europe financing their debt. byt rate has been suppressed the european central bank in europe. that is a beneficiary of suppression. the exchange rate, if it weakens inexplicably, it might be a sign that the world is tiring of servicing our substantial debt. brian: if i go to visit the federal reserve, it is on

constitution avenue. is there money in the basement? james: know. brian: where is the money? how much do they have? james: that is the best question of this fiscal year. there are two kinds of money. the legacy kind, gold bullion. there is a great deal of it stacked in the federal basement of new york. you can visit that gold. brian: why new york? james: the federal bank of new york is the headquarters of the true financial arm of the fed. washington is the administrative center. washington is where the governors of the federal reserve will meet to determine policy. they will sit around the big table and noodle over interest

rates. that's one form of money. the farm gold is new york. brian: do we know how much that is worth? $35 to the ounce? james: it is closer to $1200 to the ounce today. money, even if you say it fast. that is the material kind. far more consequential is the immaterial kind. the digital entries to the books. they are weightless. they cost nothing to produce and are the substantial dollars in the world. we have paper money and that circulates, most of it, outside the united states.

brian: you say that in the fed, it is all on paper. you just move the decimal point? james: yeah. ask them to demonstrate the creation of $1 billion and it would not take them a second. brian: if we said, show me the billion dollars, they would show a piece of paper? james: a piece of paper is rather old-school. since the year 2007, the fed has materialized out of the about $4of air, trillion. world's central banks have materialized upwards of $10 trillion. spoken thehave commands rather than typing

them. brian: could you explain quantitative easing that we went through in the last 10 years? w ast has there real money invo? what happened to it? james: quantitative easing is the fancy term for the description of the materializing of dollars that did not exist before they typed them. the federal reserve will say to yourgan, we are buying from $1 billion of treasury bills. they say, if the price is right, we'll do it. those $1ill pay for billion of treasury bills. jpmorgan has an account at the fed. the billion dollars did not

existent of the federal reserve typed it into jpmorgan's entry in the fed. brian: who can have an account at the fed? james: banks, principally. brian: any bank? a select, there are several dozen. they are called primary dealers. explained t to me somebody who saves, they don't do the theet, but if they save and interest rate is 0.4%, but the bank is getting that money at what rate? that the public subsidizes in a way to borrow at al oa low rate?

been: the public have subsidizing the banking system for some time. the bank of illinois failed. the government refused to allow it. that was the first application of the doctrine too big to fail. that's the idea that banks, unique among commercial enterprises, are protected by the government because of the nature of the business. they are dealers in debt. the government has determined that they are too important to our lives to be allowed to fail. that is one element of the subsidy. another element has been the suppression of interest rates, giving banks a fatter margin so that they can borrow from you and me. we are depositers.

we are lending money to the bank. the borrow rate is almost as little as nothing. interest don't get no when they buy or lend securities. the fed has been building these depleted depositories of the banks, by fixing it so that the banks can earn a spread, between what you and i earn on our deposits and by lending on the other side. brian: if i said, i want to see where the money is, what would i find? james: i think you would get a quizzical glance. the social security administration does have a trust

fund. it's a collection of iou's that the treasury leaves at the social security administration where it spirits away the dollars we admit to the government to satisfy our taxes. brian: there is no money there? james: you will hear people contend, and they have a point, that the social security e nonistration's iou's ar en better than bonds. i think it is a bit of sophistry myself. wet happens when we pay is send our money as though wer wee servicing a life insurance or annuity. we send our money and the social

security administration saves it, but actually, it delivers it to the treasury, and the treasury pays the soldiers, the 50-dollar toilet seats or whatever it buys. say you spirit away some of your spouse's egg money and say, i took a 20 for the day. this is how it works with a fund. brian: if there is a crisis down the road, will it be digitally? james: aren't we running out of time? i'm running out of answers. [laughter] i say that the crisis happened about 35 years ago. starting in the mid- 1980's,

grass produced must -- mock perspectives for the agency. it lays out the facts and figures and tells the business perfecter. i did this -- business perspective. i did this because -- i am the world's leading authority on when the crisis will not happen. if you ask one of the reasons why it would never happen, i can give you plenty. people say,ot of you mentioned our friend ask about the conservatives, always invoking growth. our friends at the wall street journal say, there will be no crisis. the dollar is the world reserve currency. we have the strongest economy. the fastest growth. we are exceptional people. we are the world's destination for talent and capital. i would agree with almost all of

that. ant is the anthem of entitled people. i'm now going to quote some facts and figures which would described man many a debtor, bt not the world's foremost financial superpower. bank of america has recently done a ranking of 45 countries according to the size of their government budget deficits and their trade deficit. these twin deficits. the government internal deficit and the trade deficit of 45 countries. the united states ranks ahead of argentina, but behind brazil, pakistan, and a couple others. down. this is grade

james: why is that? how do we do it? the u.s. produces much less than it consumes. it has done so for many decades. in return for the goods we export net the goods we -- we pay for these goods and services with dollar bills. we print or digitize these dollars, and with these dollars we service the debt. it works this way. foreign countries send us stuff. in return, they oblige us by b uying our treasury iou's. brian: that is why japan owns $1 trillion and china owns $1 trillion of our debt.

james: the cost of making things is not insubstantial. calamity howler, as they say, disparagingly, about say, can youy tell me what is wrong with this? it is a great system until our creditors decide they want no more part of it. doing as if we have been this without cost or without a bump in the road. on our debts in 1814. the british just burned washington. we defaulted in 1933. we refused to pay gold for dollars as promised. promisinged again, but not delivering, in 1971.

i say we defaulted in the 1970's by submitting to a virulent inflation that reduced the purchasing power of the dollars with which we serviced debts, much to the disadvantage of our lenders. in the french revolution, there was a chap who was a count of some kind, who said, i would sooner have a mortgage on a garden than a loan to a government. he meant that governments are their with respect to debts. there are citizens who are similarly amoral. but governments pay when it is expedient. when will it be expedient?

go up, whenudgets it is higher than the cost of social security, will it be expedient? brian: if you are a saver, do you worry that the government may not have -- that the banks will not have enough money. a to hundred $50,000 from f -- $250,000 limit the fdic. james: the united since government pulled out every stop in 2008 to make sure that there were enough dollars. writing about general electric. generalto the crisis, electric was a aaa rated company. they had the greatest balance

sheet of any industrial company. turns out that it didn't. it was funding itself with an imprudently-large volume of laonoans called sharp paper. no one was willing to roll those loans over for ge during the height of the crisis. brian: do they call the loan? james: they called the government. the fdic was one of the federal agencies that leapt to the rescue of the then-aaa rated ge. that is how extreme and extraordinary an intervention. people say, it won't happen next time. oh yeah, it will happen next time. i don't think the government will run out of dollars to pay.

the fed will furnish the dollars. you have a series of milestones, 193 years to get to $1 trillion. ofs year, in this time ostensibly bounding prosperity, we are expected to run a deficit in excess of $1 trillion, and the tab on the public debt will be well in excess of $1 trillion. what is so significant about $1 trilliontive increment to the gross debt this year is that it got no air time during the midterm elections of 2018. nobody said a word. it was the cold button issue of the election. i find that significant. we have become very complacent

with this debt and our tolerance for what creditors are doing. brian: you hear constantly than members of congress are short-term fingers in the senate and the house, and they'll be gone by the time the problems, and they can spend this money and not worry about it. we ared in your article, sending out more money than we are taking in. 75% of the americans get government -- money from the government in some form of che ck. ises: part of the problem people don't much care about the gross public debt. there is much to prove that. i'm telling you that on wall street, it is the least interesting and negotiable piece of in short -- piece of information that you can produce for your readers or your

clients. dime on theake a fact that the public debt will be whatever it is going to be. in fairness to the doubters, the government's cost of borrowing is only slightly over 2% on average. these are not crisis-level rates. in a way, they are depression level rates, but they do not reflect one iota of concern from america. be asking a great deal for a politician to take a stand on an issue that is exacting so little pain. brian: only a little bit of time left. you have four children. where did you meet your wife? james: at the baltimore sun. she was the fashion editor. because she was beautiful, but

that was then. the professional she has since become, she got an practicing and is a -- and grandmother of three. that is patricia kavanaugh. brian: how did she make that move from fashion editor to medical doctor? james: on merit. she woke up one day and said, i think i will become a doctor. she foreshadowed this by subscribing to the new england journal of medicine. i was filling out in jest the card that says -- i believe she was 28, and i said, i believe you are a neurosurgeon. the look on her face told me she was very serious. we had four kids at home.

it is the most impossible idea she has ever had. she decided to go to medical school and she began to take med science courses. i vividly recall organic chemistry. brian: where did she go to med school? james: the albert einstein school of medicine. brian: your kids, any of them in your business? james: three of the four are and one is going to divinity school at duke. brian: are they in your company? james: charlie. he said he wanted to get a real job at the wall street journal. what could he have meant by that? [laughter] brian: how many people do you have in your company? james: seven. brian: it is $1300 per year if somebody wants to subscribe to grant's interested observer. james: correct. brian: where did the name come

from? james: we did not poll it. brian: did you just write it down? james: the word grant cantonese content is the. brian: -- the word grant came to me spontaneously. understand. james: even then i felt the future is a closed book. as the future is being handicapped, one cannot accept, out of an extreme of conceit or error, presume to predict. it is difficult or impossible to e observedut we hav and attempted to predict, lo these 35 years. you can go to the website.

we have several issues of grants for free. brian: online, there is a video of your wife talking about -- because she does a lot with parkinson's and alzheimer's. james: did i mention she's an entrepreneur? she is developing a walker. she just returned from china trying to get it produced. brian: if you could not be what you are, what would you be? with the french horn still lay a play a role? james: i would be a professional scholar of samuel johnson. i believe the best book in the language is boswell's life of johnson. on tape.ohnson is it's like 40 hours. is the perfect thing to go to sleep to because it is a

succession of anecdotes and quotations. i turn this thing on. it is like a dog going to sleep. thisto sleep listening to wonderful english actor reading johnson, boswell, other voices. that's what i am doing around 10:00 p.m. every evening. brian: next book for you? james: i don't know. watching television at the moment. a next book is the life of an economists and wrote the doctrine for central bankers, par of which is still implemented to this day. brian: it comes out in july. our guest is james grant who thea periodical called grant interest rate observer.

james: thank you. ♪ [captions copyright national cable satellite corp. 2019] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] >> for free transcripts or to give us your comment, visit us qanda.org. transcript are also available at podcast. author sunday on q&a, and journalist patricia miller talks about her book, bringing down the kernel, about a late about atury sex scandal congressman and his former

mistress. here onnext sunday c-span. >> c-span's washington journal, live every day with news and policy issues that affect you. coming up on monday morning, an thatview with -- the role -- are playing over a border wall. and stephen dewitt will be on to talk about american workforce training. and jackie simon discusses the impact of the government shutdown on federal workers. be sure to watch c-span's washington journal live on monday morning. join the discussion. the government shut down his and his 23rd day, making it the longest in u.s. history.

>> the senate confirmation theings for william bark get on tuesday at 9:30 a.m. eastern. in december, president trump nominated him to replace jeff sessions. council atr is a kirkland and alice, and served as u.s. attorney general for george h.w. bush. watch the confirmation process for attorney general nominee william barr live tuesday at 9:30 a.m. eastern on c-span3. >> next, british prime minister theresa may takes questions from members of the house of commons. then at discussion of what constitutes a national emergency. at 11:00, another chance to see q and a with author james grant on the state of the u.s. economy. british prime minister

theresa may discussed the next steps of her brexit deal. one day earlier, members spoke in favor of an amendment that said of the deal did fail, the government had to return to parliament in three days with a new plan. this is about 45 minutes. order. just before we begin prime minister's questions i hope colleagues across the house will join me in welcoming to the house of commons today the former member of parliament for glasgow central, and now the governor of the punjab, our friend mohammed sawa. welcome, mohammed. drew henry. >> question number one, mr. speaker. prime minster may: mr. speaker, i'm sure the whole house would like to join m p