David Einhorn, manager of the $10 billion Greenlight Capital Inc., said he found a recent dinner conversation with former Federal Reserve Chairman Ben S. Bernanke scary.
“I got to ask him all these questions that had been on my mind for a long time,” Einhorn said in an interview today with Erik Schatzker and Stephanie Ruhle on Bloomberg Television, referring to a March 26 dinner with Bernanke. “It was sort of frightening because the answers were not better than I thought they would be.”
Einhorn, 45, has been critical of Bernanke’s willingness to leave interest rates near zero for more than five years. The hedge-fund manager has said the benefits of low rates diminish over time until they are more harmful than helpful, and that the Fed’s stimulus has led to income inequality. Bernanke, a former Princeton University economics professor, stepped down this year after eight years helming the U.S. central bank.
In describing the dinner conversation at New York’s Le Bernardin, Einhorn criticized Bernanke for saying he was 100 percent certain there would be no hyperinflation and that it generally occurs after a war.
“Not that I think there will be hyperinflation, but how do you get to 100 percent certainty about anything?” Einhorn said. “Why can’t you be 99 percent certain?”
Bernanke responded “you are wrong” to a question about the diminishing returns of having interest rates at zero, according to the hedge-fund manager. The ex-Fed chief’s explanation, Einhorn said, was that raising interest rates to benefit savers wouldn’t be the right move for the economy because it would require borrowers to pay more for capital.
A spokeswoman at the Brookings Institution, where Bernanke is now a fellow in residence, said he was traveling and wasn’t immediately available.
Einhorn said he was keeping an “open mind” about the new Fed Chair Janet Yellen. “I would love to see if she had a better reason for rates to remain at zero at this stage of the economy,” he said.
The Fed’s actions during the financial crisis have been praised by investors including billionaire Warren Buffett for helping the U.S. recover from the deepest slump since the Great Depression. Last year he described the Fed as “the greatest hedge fund in history” because of the money it’s generating for the government from its bond-buying program.
“I’m not sure that is meant as a compliment,” Einhorn said in response to a question about Buffett’s remark.