The Fed's "hall of mirrors".

• Author: Welch, Matt
• Position: Soundbite - Jim Grant - Interview

Jim Grant, editorof Grant's Interest Rate Observer and the author of America's Forgotten Depression: 1921: The Crash That Cured Itself (Simon & Schuster), spoke with Editorin Chief Matt Welch in August about money and policy. For a video version of the interview, visit reason.com.

Q: As someone who observes interest rates...

A: Actually, there's very little to observe. We don't have interest rates anymore. And don't we miss them. What we need, Matt, are natural, organic, freerange interest rates. You know, sustainable, local interest rates. The kind that grow spontaneously in the market, not the hothouse kind that the federal government imposes.

Q: How much do you see of the last six years, more or less, of a bull market being the artifact of zeroed-out interest rates?

A: That's a good question. You know, low interest rates flatter projected future cash flows. That is an arithmetic fact. Another fact is that America is virtually indestructible. There is a spontaneous sense of enterprise here that, try as they might, you really cannot suppress. So some of this is natural: Corporate profits have risen. There has been a recovery from our sorrows of 2008. But superimposed on all of that has been the artificial government-confected levitation ofassetvalues.

Q: So where do you see the biggest kind of artificial bubbles out there?

A: The Fed acted to raise up what they call aggregate demand, and in so doing, it also lifted aggregate supply. Cheap credit financed cheap oil, cheap copper, cheap stuff, and we American consumers like that. The Fed does not like it so much, because it tends to reduce the measured rate of inflation.

The Fed forgot about the reciprocity of these things. It wanted to raise up the demand of the American consuming public, by lifting stock prices. Except, behind those prices is real enterprise: real people making real choices about how to allocate capital. And when you get fake interest rates, you get misdirected flows of...