- Jeremy Grantham and Nouriel Roubini are well known for their bearish views on the market and economy.
- In a new PBS documentary about the Fed's decade of cheap money, Grantham and Roubini ring the alarm for stocks.
- These are Grantham's and Roubini's top quotes from the Age of Easy Money.
Jeremy Grantham of GMO and economist Nouriel Roubini are well known for their ultra-bearish views on the stock market and the economy.
A new PBS Frontline documentary, Age of Easy Money, chronicles the Federal Reserve's monetary policy decisions over the past decade and explores the potential financial consequences going forward.
Starting in 2009, the Fed embarked on a decade-long policy of providing cheap money to the economy by buying trillions of dollars of debt securities and keeping interest rates near zero. But last year, the Fed aggressively reversed its monetary policy by hiking interest rates and reducing the size of its massive bond portfolio.
Both Grantham and Roubini offered their views on what the Fed did to markets in the documentary, and what could happen next.
Here are their top quotes:
1. Roubini on the $1,400 fiscal stimulus paychecks in 2021
"People like myself, like Larry Summers and others, saw that that massive stimulus — it was unprecedented, an order of magnitude greater than the one we had after the [2008] global financial crisis — would lead to excessive demand, overheating and inflation," Roubini said.
"We had bailout checks sent to everybody — every household, every firm, every financial institution. It was too much and should have been more selective."
2. Roubini on central banks driving bubbles
"We have had literally a few decades of ever-increasing bubbles that have been fed and supported by central banks. And not only have we had bubbles, but we've had bubbles that have been fed by excessive leverage, excessive private and public borrowing and excessive risk-taking," Roubini said.
3. Roubini on central banks popping bubbles
"The party is over. Inflation is high and rising. Central banks have to increase rates. That is bursting the asset bubbles. It's increasing the amount of the debt servicing of everybody who over-borrowed like crazy. So we lived in a bubble, in a dream, and this dream in a bubble is bursting and is turning into an economic and a financial nightmare," Roubini said.
4. Grantham on the Federal Reserve bailing out investors
"Over the years, we've been trained to believe that the Fed is on our side. What the Fed has trained us to believe is that if we make a bet in the market and we win, we're on our own. We get to keep the profits. If we lose, they will bend every effort and every dollar they can get their hands on, one way or another, to bail us out. This is asymmetry of the most splendid kind," Grantham said.
5. Grantham on speculation and euphoria marking the top of bubbles
"It's the burst of euphoria that typically brings these things to an end... The housing market, the stock market and the bond market, all overpriced at the same time. If the Fed knew what it was doing it would not allow bubbles of this magnitude to take place," Grantham said.
6. Grantham on the financialization of the economy
"In my career in America, the percentage of GDP that goes to finance has gone from 3.5% to 8.5%. In a way, we're like a giant bloodsucker, and we have more than doubled in size and sucking more than twice the blood out of the rest of the economy. And we do not generate any widgets. We do not generate any real increase in income. We are just a cost," Grantham said.
Interviewer James Jacoby: "When you say 'we,' you mean you and other members of the financial community have been this kind of bloodsucker on the economy? Is that what you're saying?"
"Yes. Collectively we fulfill a completely necessary service, but what we have done is created layers upon layers of more and more convoluted, expensive financial instruments. And that's what makes all the profits for the financial industry. It's taken a lot of ingenuity and salesmanship to make this happen, and a lot of lobbying in Congress, and we have imposed on the rest of the economy the idea that banking and finance are utterly important at all times. If you do anything wrong to us, the entire economy will collapse in ragged disarray," Grantham responded.