Jim Grant on the everything bubble's malinvestments

I think the way to imagine this is to put ourselves in mind of the old college freshman fraternity initiation trick, and that is yanking a tablecloth out from under a set table of china, glassware and porcelain.  Now, if you go on WikiHow to investigate how to do this, WikiHow will advise, "Always try it with plastic cutlery and cups."  But notice the Fed has not got that option because the table is set proverbially and metaphorically... with the most brittle glassware and the most precious porcelain and bull market champagne flutes because of 12 years of suppressed interest rates which have fostered risk taking, which have brought forth into the world all these companies called unicorns because they come to market with a billion dollars and generate not much earnings.  So the world is full of uneconomic economic projects, fostered through financial stimulus, principally low interest rates, right?

So, what happens when you raise the rate of interest on companies that need to borrow just to stay alive?  Well, they can't stay alive, so they're cascading failures.  And companies supply those uneconomic things.  Think of craft beer makers that sold beer to WeWork in the day, right?  So there's a whole chain of economic activity that goes to support uneconomic activity.

So that's the metaphor for the yanking the tablecloth.

~ Jim Grant, interview with William Green, 58:15 mark, August 20, 2022