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Fed's easy money policy led to US crisis: Steve Forbes

Published on Sat, May 23, 2009 at 11:27 | Source : CNBC-TV18

Updated at Sat, May 30, 2009 at 16:55

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As the Obama administration works its way into reviving the US economy, and the Fed does its bit to stabilise the financial system, they have one critic who's not mincing his words - Steve Forbes, President & CEO, Forbes and Editor-in-Chief, Forbes Magazine. Steve said the crisis is a creation of the Fed and its policy of easy money over the last decade. "When the Fed created too much money for far too long, it provided the fuel for the housing bubble."

Forbes said that the Fed is in the grasp of academics who don't know central banking. "Ben Bernanke came out of the academia, Allan Greenspan came out of the consulting business not Wall Street. So they are both guilty."

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Here is a verbatim transcript of the exclusive interview with Steve Forbes on CNBC-TV18. Also watch the accompanying video.

Q: I know that you hold the Fed guilty of over-fueling the economy. How about the markets when market's position gets overwhelming, what choice does the Fed have? If they don't come in, the market could collapse?

A: The thing I'd would like to say is; don't create a market collapse in the first place. When the Fed created too much money for far too long, it provided the fuel for the housing bubble. We could have never had one the size that came into the US if the Fed hadn't been pouring out fuel Freddie Mac and Fannie Mae also feel that these government corporations are guaranteed over a trillion dollars of jumped mortgages. So the Fed bears primary responsibility for it has been doing its job. Now once the system went under cardiac arrest, the Fed should have been today more aggressive in getting the heart going again - the credit system is like the heart of a body; you can have great muscles, great brain but if the heart is not working, you have a problem. So the Fed since December has been very sluggish in doing something for the economy, it hasn't pumped in one extra dollar.

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