Print it!

Oh for the days of yesteryear, when everyone believed Alan Greenspan was the master of the universe. Sitting in his high-backed leather chair, surrounded by the million levers of the machine called monetary policy, he could steer the domestic and international economy with precision. Surely, without him and his legendary intellectual power, all would be lost.

You know what? It was all hooey. The Fed chairman has only one power: to create or destroy money. Even that power is limited by the behavior of the markets themselves. If the demand for money and loans isn't there, cutting the federal funds rate doesn't do the trick. He can buy and sell government bonds, but that is dangerous because too many purchased in the open market can cause the dollar to fall and price inflation to rise.

In the end, Greenspan has lots of power to create havoc, and very little to do good. The thing he can do is nothing, which is very much against his grain. We learned that during the Mexican crisis, and again during the Asian crisis. We have learned that yet again – hoo boy, have we learned – during the weeks that followed the Sept. 11 attacks.

Just look at the numbers, using the broad measure of money employed by the St. Louis Fed (MZM, or money of zero maturity). Before the attack, money was soaring at 10 percent annualized. After the attacks, it spiked to 15 percent and above (we'll know more when all the data have been accumulated). We may look back at the end of the year and see money creation closer to 20 percent. And is there anyone that the Fed hasn't promised to bail out?

Many of us worried that the U.S. would someday go the way of Japan, toward permanent recession combined with a central bank just begging people to borrow. The Bank of Japan recently lowered its rates again from 0.15 to 0.1, and not a soul believes it will spur productivity. Knowing from history that history teaches central bankers nothing, many people knew that there but for the grace of God went Alan Greenspan.

And Greenspan has gone that way. Rates are now down to 2.5 percent. 2.5 percent! That's the lowest in 40 years. Real savings are nil. What people thought were savings – stock accounts – are losing value by the day.

Still, some people ask: Why does Greenspan keep rates so high? Why indeed? Why not bring them down to Japan-style levels of 0.1 percent? In fact, why not abolish interest altogether in accord with the lunatics who believed interest to be immoral "usury"?

Here's why: Printing money does not create prosperity. In fact, it doesn't produce any net social benefit. It only redistributes wealth, making each individual unit of the currency worth less and less, and rewarding those who receive the newly created money before the purchasing power of everyone else goes down. Interest rates are the price we pay for living in a world of scarcity.

If you think about it, it's nuts to think that printing money can create prosperity. If that's all there was to it, all issues in economics would have long ago been rendered irrelevant. Society would have been wealthy and productive for the last 3,000 years. But long ago, someone caught on that alchemy is phony, and that counterfeiting – even when done by the government – is a crime, not a social service.

Tell that to the Fed, which still doesn't seem to understand that productivity is a consequence of saving (a word so rarely used that it probably won't be in the next Webster's) and investment (real investment, not IPO manias). It requires sacrifice of present consumption, and entrepreneurship on the free market.

But isn't new money essential when the economy is weak? Quite the opposite. The economy is weak due to the preceding economic boom, which was all out of proportion to its fundamental justification in savings. The madness of the late 1990s was itself a result of monetary pumping by the Federal Reserve. We must allow the correction to occur so we can be on a solid footing for the future.

But the Fed, convinced it is the Magical Prosperity Machine, has refused to let the recession happen, and nothing can deter these people and their printing presses. Even a terror attack that destroyed the World Trade Towers wasn't enough to bring them back to reality.