James Grant on Central Bankers

From Forbes:

When interest rates were falling and inflation was subsiding for most of the past quarter-century, the reputation of the world’s central bankers was inflating. No more the bungling authors of the Great Inflation of the 1970s, the likes of Trichet (and, of course, Alan Greenspan) were triumphantly rehabilitated. In April the government of France was able to borrow for 50 years at 4% in euros, a currency that has been in physical existence for only four years. Has any prettier compliment ever been paid to a steward of paper money?
“Monetary policy needs to be forward-looking,” said Rachel Lomax, deputy governor of the Bank of England, in a March speech, “because interest rates act with a lag. No monetary policymaker can avoid taking a view of the future.” The British central banker’s words sum up the difference between Warren Buffett, appraiser of values, and Alan Greenspan, stargazer.
Instead of guessing about the future, value-minded investors observe the present, in company-specific terms: What is a business worth? What does it own, and what does it owe? What does it earn? They invest in what they can see, not in what they imagine they can predict.
The world over, measured inflation rates are running neck-and-neck with nominal interest rates. It’s a race that interest rates are bound to lose. At the very least, no saver listening carefully to the noises emanating from governments and central banks can harbor much optimism about earning a satisfactory inflation-adjusted rate of return.

Posted by on December 15th, 2005 at 10:09 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.