THE BUTCH CASSIDY OF BANKING

"Alan Greenspan is the greatest economist of our time...probably the best central banker of all time."

Thus saith a French economist this morning interviewed on a radio talk show this morning. Your editor, also a guest on the show, was asked to respond. What follows is not what he said (because when he is called upon to speak in public he tends to hem and haw like a teenager asking for a date.) But this is what we intended to say:

"Yes, we agree. Alan Greenspan is probably the best central banker that ever lived...in the sense that Butch Cassidy was a great bank robber or Mrs. Purdy ran a great bordello. What is great about him is that he really understood central banking and appreciated it; the way a swindler admires a really good flimflam."

"What you have to remember," we began, gravely, "is that a central bank cannot work miracles. It cannot turn water into wine. It cannot make the blind see, nor heal the sick. When we speak of the central bank 'creating prosperity,' for example, we are either exaggerating or outright lying. The lilies at central bank toil not, neither do they spin. They plant not. They harvest not. They manufacture not. They invent not. 'Not' is what they do best...except when it comes to the nation's stock of money. There they put their shoulders to it.

"But what can they do? They are typically thought to control the quality of money. This, of course, is what they are supposed to do. And in Europe, more or less, that is what Jean-Claude Trichet does. But central banking in Europe is a slightly different matter from central banking in the United States. Bill Clinton jokingly wished he could create an Alan Greenspan Inc. and sell it on the NYSE. So high had Greenspan's stock flown, Clinton knew he'd get rich on options and warrants. Who would suggest such a thing for Trichet? Who even knows his name or would recognize him a lap-dance bar? The man labors in relative obscurity...if not absolute and perpetual darkness.

"How he must envy Alan Greenspan! The American Fed chief's picture is on the cover of every magazine...on the front page of every newspaper...and on the evening news, too. Le Monde commented earlier in the week that Greenspan was 'the prototype for the great leader of the 21st century.'

"Why such a big difference between the European's central bank chief and his American counterpart? We have an answer. It is because the euro-functionaire does the job he's supposed to do. Europe is a mixture of many different economies. It cannot easily agree on a common economic policy. The most it can ask of its central banker is that he not destroy the group's common money.

"Not so over in the imperial homeland. There, Mr. Greenspan casts a much bigger shadow across the world stage. He is not merely a bit player but the lead...the protagonist...the one who outsmarts the villain and wins the heart of the leading lady. And he is the one with the big guns in his hand. America's Fed-head is charged not merely with protecting the dollar, but also with assuring full employment, hiking-up property prices, doling out low-cost credit, re-electing all public officials; he must finance all wars, pills and hurricane clean-ups, and a low-fat chicken in every pot. He has what is known as a 'dual mandate' - he must control the nation's economy and its money at the same time.

"But there is a place where the whole folderol washes up every time. A central bank can protect the value of the currency; Trichet is proving it. But when it is asked to do more than that, the currency swiftly goes down the drain. Let us explain: The only thing a central bank can control directly is the nation's money. It can control either the quantity of it, or the quality. The quality is controlled by resisting the impulse to issue too much money, but resisting the impulse to create too much money is exactly what nobody wants. Politicians, consumers, merchants, investors and two-bit grifters all want more money, not less.

"Thus, even the most prudent and responsible central bankers inevitably allow a bias to creep into their management of the country's money. When crises threaten they quickly cut rates and pump up the money supply. When crises don't threaten any more, they drag their feet in tightening up. We saw this happen with Alan Greenspan's Fed recently. The recession of 2001 brought brisk treatment - rates were lowered like a leper's body into a grave. But when the time came to put rates back up, it was done gingerly...by tiny 'baby steps' over what seemed like an eon.

"And that is why activist central banking is nothing more than a fraud. If the object were only to have stable money, the bankers would simply fix the price of the currency to gold and no banker's bilious face would appear on the cover of Time. They'd all be as anonymous as Trichet. Alan Greenspan said so himself, before he arrived at the Fed. And yes, once settled in the cushiest chair at the Fed, Alan Greenspan made central banking work...but only for him.

"The job, as we have come to know it, is better than 'Survivor' when it comes to creating celebrities. The only thing it does better is creating money. And the only thing you can be sure of is that the money it creates will lose value and continue losing value until it has none left. At that point, even lepers won't want to touch it."