Ben Bernanke, meet the ghost of Alan Greenspan

Ben Bernanke

KAI RYSSDAL: Raise your hand if you recognize this voice.

VOICE: The United States, especially, has been able to absorb the huge implicit tax of rising oil prices so far. However, recent data indicate we may finally be experiencing some impact.

Yep, that was Fed Chairman Alan Greenspan testifying on Capitol Hill today. . . . Wait, he's not the chairman anymore, is he? That's a guy named Ben Bernanke. Who's been getting some heat lately for sending Wall Street on a wild ride. Down, mostly. We put in a call to Jim Grant to get some perspective. He's the editor of Grant's Interest Rate Observer. Mr. Grant, Just a star turn by the former chairman today?

JIM GRANT: I tried to find out — so far, unsuccessfully — whether Paul Volcker, who retired in 1987, succeeded by Alan Greenspan, whether Volcker himself every came to Capitol Hill within months of his departure. I seem to remember not. You know, Alan Greenspan has a book contract, he has a speaking business, and maybe he figures it's good business to stay in the headlines.

RYSSDAL: How much of the kerfuffle the past couple of days in the foreign exchange markets, and the bond market and the stock markets is about Ben Bernanke's actual performance as chairman of the Federal Reserve?

GRANT: People are trying to figure him out. And, I think what they are coming to terms with is the nature of the business that Mr. Bernanke is in. Namely, he is in the price-fixing business. That's essentially what our central bankers do. They reach into the sky, after a lot of staff meetings, and pick out an interest rate. And it is the basic, short-term interest rate for the world's dollar economy. The fact that the funds rate is fixed is an anomaly. And under Greenspan — who was very nearly canonized while living — under Greenspan people came to assume that this impossible thing could be done. Impossible because prices so rarely are successfully fixed, whether they are soybean prices are rail freight rates. And now we come to a new fellow who has none of the aura of the old guy, and we are coming face-to-face with the impossibility of him doing his job well all the time.

RYSSDAL: How much of what's been happening in the past couple of days is about what's actually being said by Mr. Bernanke and some of his colleagues on the Fed, and how much of it is about the rest of us trying to figure it out?

GRANT: You know, the past couple of years interest rates have been very, very low. There's been a great hurrah and residential real estate house prices have gone up a ton. People have felt rich. They've borrowed against that perceived wealth. And it's become habitual and habit forming and very pleasantly so. But, that has to end when rates go up high enough. So, maybe the problem today lies with the fact that the Fed seems insistent upon lifting this one interest rate while the economy might not be able to stand it so easily. So, the Fed seems to think that business activity is fine and the immediate peril is rising prices. It might just be the Fed is misinformed. It might just be that the more immediate peril is for a slowdown in the economy and for the great heap of debt to make its own mischief.

RYSSDAL: Let me make sure I understand what you just said. Could it be that the Fed is misinformed? That's a little scary, frankly.

GRANT: If, instead of the very important-sounding phrase "central banker" you were to substitute the phrase "government worker," would you be a little less surprised of the possibility that the Fed could be misinformed?

RYSSDAL: Jim Grant is the editor of Grant's Interest Rate Observer. Mr. Grant, thanks a lot for your time.

GRANT: You're welcome, Kai.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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