Inside the Fed

Excerpt from an exclusive (and fictional) interview that Random Glenings had yesterday afternoon with Fed Chairman Ben Bernanke.

Random Glenings: Well, Mr. Chairman, quite an announcement today - low rates for the next two years. Can you explain your reasoning?

Ben Bernanke: It's obvious that the economy is not recovering as we had hoped. There are lots of reasons for the current economic malaise, but one of the big reasons, I believe, is that people are too uncertain about the future. The budget talks here in Washington were a perfect example.

RG: How so?

BB: Congress and the President took the country right up to the edge of default a couple of weeks ago, and for what? Budget cuts of $900 billion spread out over 10 years? This will hardly make a dent in our deficit. People are desperate for leadership, and they're not getting it.

RG: So how does keeping interest rates low help?

BB: What we are trying to do is help revive investment activity and create jobs. Our economy is swimming in cash and liquidity. I read the other day that Corporate America has $1.9 trillion in cash on their balance sheets - why don't they invest it, or at least pay a dividend?

RG: And so by telling corporations that the returns on cash will be 0% for the next two years you're hoping to force them to invest.

BB: Exactly. We are trying to revive the "animal spirits" in the economy that Professor Shiller at Yale is always talking about. Our economy is suffering from a combination of too much debt and too much caution. If we can get investment going again, and get unemployment lower, we can address a lot of our fiscal problems.

RG: And help the stock market?

BB: Oh, I don't really care too much about the market. I personally believe that Wall Street is the most overpaid group of people on the planet. My focus is on the same types of people that I grew up with in South Carolina - hardworking people who just want to live a decent life, make an honest living, and save for their future.

RG: Last fall you wrote an editorial for the Washington Post in which you implied that you wanted stock prices to go higher, which of course they subsequently did. Any chance you'll be writing another piece?

BB: Well, probably not. Unfortunately the overall message of my article was lost because of the one sentence about the stock market. No, I think today's actions speak for themselves: the Fed wants to move cash off the sidelines, and get it to work.

RG: Thanks very much.