live when itse dabbles in today. we will have the senate live on c-span 2. >> the senate confirmation hearings for william barr to be the next attorney general of the u.s. begin at 9:30 eastern. he was nominated to replace jeff sessions. illiam barr is now at a private law firm. watch the confirmation process tuesday at 9:30 a.m. eastern on c-span three. >> this week on q & a.

author and columnist james grant. talks s about the he about the state of the u.s. economy and our expanding national debt. >> james grant, when will you stop worrying about the $21.5 trillion of debt? >> i started worrying at about 1956. i must confess that i am here without the british. i know that the british are coming with respect to the ebt. >> in what way are we going to see it? it does not seem like anybody cares. >> it is remarkable. way back in 1993, i am losing he name. ross perot was running for president.

he calls the public to crazy aunt in the attic that nobody talks about. people did talk about it. t turns out that the debt is not such a problem, bill 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 ign 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. when something is in the papers and on the tip of everyone's tongue, that is a reason to stay away. we now have silence with respect to public debt. brian: what do you do for a living?

james: i write about the markets. brian: how can we see it? james: i wrote a piece on public debt. i review for the claremont review and i publish a book every now and again. i make my living by writing about markets, 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? james: you have to try to 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 are 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 of these spiteful intramural political arguments in the staff. i was alongside of it. i daresay it was not because of some tiff. that was my reason for leaving.

i didn't want to be rewritten by the editors of forbes or wall street journal, as good as they are. i set off on the preliminary iss 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 business right there. i daresay we overcame is growing pains. brian: what is an average investor do for a living? james: for average, they buy low and sell high. a professional investor, most likely. we have many who invest of their wn 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. that is another good reason not to write a book. i had been smitten by john adams high-mindedness, his selflessness, his

inextinguishable patriotism. said, i will step away, nights, weekends, and the fourth of july, i'll step away from wall street. i will write about the life of john adams. it was called party of one, alluding to his 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. you are in the company of the individual.

he never leaves your side. he goes with you nights and weekends. y family was sickened of the resence 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 librarian in indiana. brian: a well-known historian, robert farrell, has been on this program and was your professor. what do you remember of robert farrell? james: we were in a town in indiana with smaller than 500 people. it was springtime. the windows were open.

headway 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. "i wonder how many books the cost of that car would buy." i had the privilege of writing is obituary. e was a lifelong mentor. brian: what was special about him? james: his generosity with respect to his students, and his tireless scholarship. he wrote 60 or 70 published

books. he never quit. some of them were news reaking. 'm not sure if you interviewed im 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. he was a remarkable scholar and a generous professor. brian: how does some but he born n 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 committed me to two years of 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. 'm not sure how you got around after the navy, but i saved my money. i bought a 1957 mercedes-benz sl. can you imagine the prospect of a 22-year-old veteran with that car? i went and said, i have been ccepted as a french horn layer -- player at the university of

indiana. he said, oh really? i've never been. i only lasted like six months among these truly talented individuals i was diligent, which is different. brian: how many years in the navy? james: you have been quoted as saying that you had five years. brian: [inaudible] james: i was only two years active but it was such a formative experience. brian: what years were you in he 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 fair line than i was manning a .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 avy in those days. brian: another name in your book is jacques barzun? james: he was a great scholar of 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 pleasurable was under the tutorship of jacques

barzun. he was present for the opening night of the firebird in paris. i think 1913. here was a notorious opening performance. here is a man who was a contemporary of stravinsky and so many cultural figures. i so loved his scholarly resence. 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.

his was 1971 or something. i was the only guy on campus wearing a necktie. the president received me. he was somewhat distant. he did not mean to be chilly or patronizing, but he came across as it. i asked him how he became self-read. he said, why? read. so i have been reading. it was good advice. brian: how long until -- james: i wanted to be in the way f writing. whether it was for books or newspapers or something else, i wanted something to do with the ritten word. in 1972, i applied to about 100 newspapers. it was not a great year for ournalism. i did apply to these dozens of

papers. the baltimore sun said yes. it was the only one. i went and started writing about fires and obituaries and 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

orthy. the mortgage-backed securities, these seeds of financial engineering that turned out not o be seeds at all. thanks to such foreminded leaders such as alan prenier, we read on ly raiden -- 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. i said, a-ha, we have a story. 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 008.

we turned properly bullish in late-2008 and 2009. i have been known as someone who, quite fairly, had too many false positives. we had a good 2007-2009. 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. some of 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. here 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 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 ewsletter. who is cheating? 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 observers of the scene as grant strives to be. hey are selling something as ell. wall street means to sell you something. it falls to the customer to realize that and to be on one's guard. what one can't absolve all of wall street. wall street is venal for a living. wall street is what it is. it has been a name, mostly an infamous name. wall street is an epithet. what we ought to be more on guard about are the institutions in the federal government that are valiantly denied, that are

part of the treasury, the securities and exchange ommission. these are set up as benefactors of the public and increasingly they are not so. the federal reserve rode to our escue in 2008. the fed imposed the lowest nterest rates, by some measures, since the middle ages. by other measures, worldwide interest rates were imposed at the lowest in 3000 years. what have they done? hey have nudged investors into

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 in 2011, who said, the russell 2000 index, that is an insider thing, russell has been doing very well, advising people to think about investing in stocks. who will tell the risk-averse savers when it is time to get out? 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] brian: you 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, and $20 trillion in 2017. as a journalist, i would say, how is that possible? he first 193 years, we did not 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. you type on the keyboard of the federal reserve and you can materialize dollars. it used to be that a dollar was, t least in law, defined as a weight of something. three-fifths 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 the

means of borrowing and servicing debt. so too has the collapse in interest rate since 2008. the political 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 bolqvist's new autobiography. he describes washington in the 970's. he said, washington has one four-star restaurant. he says that today, washington is chock-full of the most fabulously rich people.

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. remember vivian callums? she was a tax protester who got started in 1945. ith the war was going to end federal income tax withholding. all businesses had to do the

bookkeeping on behalf of the overnment. she was a 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. you can't go wrong if you call 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 left, 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. how? james: during the carter 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. he u.s. had abrogated five years earlier its promise to pay gold on demand. the u.s. had difficulty financing our debt. then, the debt was 40% of what 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 he 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 eaches 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?

--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. that rate has been suppressed by the european central bank in

europe. italy is a beneficiary of that 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 asement? james: no. 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. ashington is where the governors of the federal reserve will meet to determine olicy. 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 s worth? brian: $35 to the ounce? james: it is closer to $1200 to the ounce today.

it's a lot of 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 ould 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. brian: since the year 2007, the fed has materialized out of the thinnest of air, about $4 trillion. the world's central banks have materialized upwards of $10 trillion. they could have spoken the commands rather than typing them. brian: could you explain quantitative easing that we went through in the last 10 years? was there real money involved? 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 jpmorgan, we are buying from you $1 billion of treasury bills. they say, if the price is right, we'll do it. the fed will pay for those $1 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?

james: no, there are a select several dozen. they are called primary dealers. brian: explain to me somebody who saves, they don't do the market, but if they save and the interest rate is 0.4%, but the bank is getting that money at what rate? is it in that that the public subsidizes in a way to borrow at a low rate? james: the public have been subsidizing the banking system for some time. in 1984, 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 ature 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. the banks don't get no interest 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 ther 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 ontend, and they have a point,

that the social security administration's iou's are no better than bonds. i think it is a bit of sophistry myself. what happens when we pay is we send our money as though we were 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 sailors, 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. that is how it works with this fund. brian: if there is a crisis down the road, will it be digitally? james: aren't we running out of

time? 'm running out of answers. [laughter] i say that the crisis happened bout 35 years ago. starting in the mid- 1980's, grass produced mock perspectives for the agency. it lays out the facts and figures and tells the business perspective. i did this because -- i am the world's leading authority on when the crisis will not appen. if you ask one of the reasons why it would never happen, i can give you plenty.

you hear a lot of people say, 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 hat. that is the anthem of an entitled people. 'm now going to quote some facts and figures which would describe many a debtor, but 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. brian: this is grade down. 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 mport, net the goods we export -- 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 buying our treasury iou's. brian: that is why japan owns $1 trillion and china owns $1 rillion of our debt. james: the cost of making things is not insubstantial. if you are a calamity howler, as they say, disparagingly, about the debt, they say, can you tell me what is wrong with this? it is a great system until our creditors decide they want no more part of it. is not as if we have been doing this without cost or without a bump in the road.

we defaulted on our debts in 1814. the british just burned ashington. we defaulted in 1933. we refused to pay gold for dollars as promised. we defaulted again, promising 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 amoral with respect to their debts. there are citizens who are similarly amoral. but governments pay when it is expedient. when will it be expedient? hen the budgets go up, when it is higher than the cost of social security, will it be expedient? brian: if you are a saver, do you worry that the banks will not have enough money. there is a $250,000 limit from the fdic. >> i think there will always be enough dollars. the question is, what will those dollars buy? the united since government

pulled out every stop in 2008 to make sure that there were enough dollars. the other day, writing about general electric. going into the crisis, general 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 loans 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. this year, in this time of 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

this perspective $1 trillion increment to the gross debt this year is that it got no air time during the midterm elections of 2018. obody said a word. t 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. rian: 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. you said in your article, we are sending out more money than we

are taking in. 75% of the americans get money from the government in some form f a check. james: part of the problem is 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 information that you can produce for your readers or your clients. you cannot make a dime on the 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. it would 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. he was the fashion editor. because she was beautiful, but that was then. owadays, as the professional she has since become, she got an mba, an md, and is a practicing neorologist 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 ard 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. -- interest rate 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 came to me spontaneously. brian: i understand -- james: of all the words in the orld, why these? 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 redict, but we have observed and attempted to predict, lo hese 35 years. >> i want to get the date on this piece in case someone wants to read. it is november 5. james: 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 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. life of johnson is on tape. 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. i go to sleep listening to this 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.

y next book is the life of a figure who was an economists and wrote the doctrine for central bankers, part of which is still implemented to this day. brian: it comes out in july. our guest is james grant who has a periodical called the grant interest rate observer. ames: thank you. >> for free transcripts or to give us your comment, visit us at q-and-a.org. programs are also available at cspan's podcast.

>> next sunday on q&a, author and journalist patricia miller talks about her book, bringing down the kernel about a late , 19th century sex scandal about a congressman and his former mistress. that is next sunday here on -span. >> tonight on the communicators. >> we're talking about here, fiberoptic technology. it is not new. it has been around for detective aids. the idea is a very, very thin strand of glass allows as far as we can tell unlimited amounts of information to be pumped through it by lasers.