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00:00THAT LED TO THE HOUSING BOOM AND BUST. SINCE THE CRISIS OF 2008, 2009, QUANTITATIVE EASING OF ZERO INTEREST RATES HAVE DEPRESSED ECONOMY, NOT STIMULATED IT. IT HURTS CREDIT ALLOCATION TO SMALL BUSINESSES AND HOUSEHOLDS. MICHAEL: YOU CAN SEE THE ROCKET GOING UP TO SPACE WITH THE BRITISH ASTRONAUT ABOARD. NOT GOING TO KNOW THE RESULTS OF THE IOWA CAUCUSES OF NEW HAMPSHIRE -- THE IOWA CAUCUSES OR NEW HAMPSHIRE FOR SIX MONTHS. YOU SAID THE FED WEAKENED TO THE DOLLAR. THE DOLLAR WOULD HAVE WEAKENED ANYWAY, GIVEN THE GREAT RECESSION. STEVE: THE DOLLAR STARTED TO WEAKEN AFTER THE 2000-2001 RECESSION, PARTICULARLY WITH THE TREASURY AND THE FED THINKING THIS WOULD STIMULATE THE ECONOMY. THEY KEPT THE DOLLAR WEEK LONG AFTER THE ECONOMY BEGAN TO RECOVER, SO ALL ECONOMY -- ALL COMMODITY PRICES STARTED SURGING UP. THE SAME THING HAPPENED IN THE 1970'S. WHEN ALL COMMODITIES MOVE IN ONE DIRECTION, YOU HAVE A BIG PROBLEM. THEY IGNORE THE SIGNALS, SO THERE WAS A COMMODITIES BOOM, WITH A WEAKENING OF THE DOLLAR. YOU HAD THE HOUSING BOOM BECAUSE PRICES WERE GOING UP AND PEOPLE FIGURED THEY WOULD GO UP MORE AND MORE. THAT BUSTED AND LED TO THE RECESSION OF 2008-2009 AND A FINANCIAL PANIC, BUT SINCE THEN, WHAT THE FED HAS DONE, CONTRARY TO WHAT THEY THINK, THEY WERE DEFLATING THE ECONOMY, NOT INFLATING IT. VONNIE: WOULD YOU NOT ARGUE THAT POLITICS IS LOCAL AND THEREFORE MONETARY POLICY IS NOW GLOBAL? SO THEY ARE NOT LOOKING AT ONLY THE U.S. THEY NEED TO LOOK ELSEWHERE LIKE CHINA. STEVE: THIS ASSUMES A CENTRAL BANK LIKE THE FED CAN STIMULATE THE ECONOMY IN A SUSTAINABLE WAY. THEY CANNOT. THE BEST THING THE FED CAN DO IS HAVE A STABLE DOLLAR. A WEAK DOLLAR IS DESTRUCTIVE, AND OVERLY STRONG DOLLAR IS DESTRUCTIVE. IT IS LIKE A WATCH OR A CLOCK -- IT IS TOO FAST OR TOO SLOPE YOU DO NOT WANT DEFLATION OR INFLATION, YOU WANT TO HAVE "FLATION." FRANCINE: THEY ARE ALSO NOT HERE TO MAKE IT WORSE. STEVE: IN TERMS OF THE BEST THING THEY CAN DO, THE IDEA THAT IF THEY CRAVE BANK RESERVES, THAT GIVES SUSTAINABLE WEIGHT TO STIMULATE THE ECONOMY, THAT IS A FALSE ONE. MONEY IS A MEASURE OF VALUE. IT MEASURES VALUE. IT IS LIKE A CLOCK MEASURING TIME OR SCALES MEASURING WEIGHT. IF THE WAY YOU MEASURE MONEY KEEPS FLUCTUATING, IT HURTS INVESTMENT AND IT HURTS CAPEX EXPENDITURES IN THE U.S. THEY THINK MONETARY POLICY IS A SUBSTITUTE FOR SERIOUS STRUCTURAL REFORMS, SO YOU HAVE A STAGNANT GLOBAL ECONOMY. VONNIE: IN ELABORATE A LITTLE BIT. YOU SAY THE ONLY REASON THERE WAS A COMMODITIES BOOM IS THAT COMMODITIES PRICES STARTED TO FALL WITH THE WEAKER DOLLAR. ARE YOU SAYING THAT THE ONLY REASON CHINA WAS DEVELOPING WAS BECAUSE OF THE CONSTRUCTION BOOM, AND IN THE U.S. BECAUSE OF THE WEAKER DOLLAR? STEVE: WHEN THERE IS A GENUINE DEMAND FOR MORE COMMODITIES, WITH THE RISE OF THE CHINESE ECONOMY AND INDIA AND OTHER COUNTRIES HAD, YOU GET MORE PRODUCTION. BUT IN TERMS OF OVERTIME -- VONNIE: YOU ARE NOT SAYING THAT IS PURELY BECAUSE OF THE WEAKER DOLLAR? STEVE: THE COMMODITIES BOOM, 85% OF THAT WAS BECAUSE OF THE WEAKER DOLLAR. OIL WENT FROM THREE DOLLARS A BARREL TO ALMOST $40 A BARREL. WHEN VOLCKER AND DID IT IN THE EARLY 1980'S, OIL CRASHED. THE AVERAGE PRICE OF OIL WAS A LITTLE OVER $21 A BARREL. SUPPLY AND DEMAND IS NOT EXPLAIN WHAT HAPPENED IN THE LAST DECADE. MICHAEL: WE HAVE A CHART THAT SHOWS AT LEAST THE SYMPTOM, IF NOT YOUR DIAGNOSIS. THE COMMODITY INDEX IS DOWN TO ITS LOWEST -- YOU HAVE TO GO BACK TO MARCH 16 OF 1999 TO SEE THE OVERALL COMMODITY INDEX THIS LOW. YOU ARE A FREE-MARKET GUY, RIGHT? HOW DOES THE FED MAINTAIN A STABLE DOLLAR IN A FREE MARKET WORLD WHERE MARKETS ARE GOING TO SET THE VALUE OF A DOLLAR BASED ON ALL SEARCH OF EXTRANEOUS FACTORS? STEVE: THE KEY THING IS MONEY IS A MEASURE OF VALUE. IT IS LIKE SAYING WE SHOULD HAVE FLOATING CLOCKS, 60 MINUTES ONE DAY, 48 THE NEXT, 96 MINUTES THE DAY AFTER. YOU WANT A FIXED VALUE FOR TIME, AND YOU WANT A FIXED LU FROM MONEY BECAUSE IT MAKES IT EASIER TO TRADE WITH ONE ANOTHER. WHEN I MENTIONED IN THE BOOK, FOR 180 YEARS THIS COUNTRY HAD A LINK TO GOLD. WE ARE GOING TO HAVE THAT KIND OF MONETARY SYSTEM AGAIN. THAT KIND OF STABILITY, YOU HAVE FEWER FINANCIAL CRISES. PAUL VOLCKER TALKED ABOUT THAT HE YEAR AGO. THE BANK OF ENGLAND HAS DONE STUDIES. MORE FINANCIAL CRISIS, MORE INSTABILITY. A STABLE VALUE. THE BEST THING THEY CAN DO IS ALLOW THE MARKETS TO OPERATE WITH THE REAL COST OF MONEY -- I.E., LET INTEREST RATES SET THEIR OWN LEVEL -- AND START TO PAY DOWN OR RUN DOWN THEIR BLOATED BALANCE SHEET. WHEN A BOND COMES DO, DO NOT REINVEST THE MONEY. PUT IT TO WORK IN THE REAL ECONOMY. FRANCINE: I LOVE YOUR CONTRARY IN VIEW. BUT CURRENCIES ARE NOT LIKE CLOCKS BECAUSE YOU CAN ALSO HAVE CURRENCY WARS. AT THE END OF THE DAY, IT IS GOOD FOR NO ONE, BUT AT LEAST HE GIVES A BOOST TO EXPORTS IN THE SHORTER TERM. STEVE: AGAIN, BECAUSE YOU CAN FLUCTUATE A CURRENCY , LIKE I

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Forbes: Fed Has Deflated U.S. Economy Since 2008-2009

Steve Forbes, editor-in-chief at Forbes Media, explains what he doesn’t like about U.S. monetary policy as the Federal Reserve is expected to raise rate for the first time in seven years. He speaks on "Bloomberg Surveillance." (Source: Bloomberg)

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