Bernanke to Einhorn: You're Wrong About QE

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May 6 (Bloomberg) -- David Einhorn, co-founder & president at Greenlight Capital, discusses his conversation with former Federal Reserve Chairman Ben Bernanke on quantitative easing and Fed policy on Bloomberg Television’s “Market Makers.”

Yesterday presenting.

One of your biggest ideas, shorting athena health.

Another hedge fund manager was there and he said this -- what we desperately need is a macro doctor to prescribe central-bank viagra, because otherwise it will continue to be somewhat low.

Now, paul may share your concerns about quantitative easing, but quantitative easing has been awfully good for people long in the stock market at the very least.

Do you share that view?

I adore paul.

We do robin hood together.

He is one of my favorite managers around.

And an awfully smart guy.

I don't really think that they should set my -- set macro policy to create volatility.

That does not strike me.

So, i think he is going to have to live with the environment he gets from that.

That being said, as you know i have been very critical of monetary policy over the past two years.

A jelly doughnuts and all.

He recently had dinner with ben bernanke.

What went down?

We couldn't be there.

I have watched him for years in front of congress, speaking, watched him on television, 60 minutes.

What was your opinion of him before hand?

I have been critical.

I have been critical for a long time.

In one way, the dinner was cathartic.

I got to ask him all these questions that had been on my mind for a long.

Of time, right?

On the other side, it was sort of frightening, because the answers were not better than i thought they would be.

What did you ask?

Several things.

He started out by explaining that he was 100% sure that there would not be hyperinflation.

Not that i think that there will be hyperinflation, but how do you get to 100% certainty on anything?

Why can't you be 99% certain?

How do you manage that risk?

He said -- well, hyperinflation generally occurs after a war.

And we did not have one that's not here.

There is no sign of inflation now.

Japan has done a lot more wanted native easing than we have done and they don't have it.

If there is a big inflation, the fed will know what to do.

That was kind of the answer.

What did you say?

That was it.

We went to the next question.

A few minutes later we came back and i got to ask him about the jelly doughnuts.

My thesis was that it was like too much of a good thing.

Lowering rates, quantitative easing, these things help with a diminishing return and eventually you go too far and it is like eating the 35th jelly doughnut.

It does not actually help you, it slows you down and makes you feel bad.

My feeling has been that by having rates at zero for a long time, what we are doing for favors outweighs the benefit it might be seen elsewhere in the economy.

I asked him about this.

What did he say?

He said -- first of all, you are wrong.

That was good.

He said the reason is that if you raise interest rates for favors, someone has to pay that interest.

So, you don't create any value in the economy, because for every favor there has to be a borrower.

I came back to him and said -- wait a minute, you said for a long time we had not had enough fiscal stimulus.

Who is on the other side of the low interest trade?

The government.

If the government raise the rates, the government would have to pay more in favors.

You would have the bigger deficits and create the fiscal stimulus that you are complaining congress would not give to you, right?

Favors would benefit from the higher rates and savings is at a very high rate in terms of interest income spent at a high percentage.

You have a real slow through the economy.

One of the questions that you

This text has been automatically generated. It may not be 100% accurate.


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