The Greenspan touch.

• Author: Greenspan's, Alan
• Position: OFF THE NEWS

Even out of office, former Federal Reserve Chairman Alan Greenspan continues to play a serious and impressive role in backroom Washington policy discussions. In his forthcoming book, due out later this year, Greenspan is said to lavishly praise his successor Ben Bemanke as both a scholar and policymaker. Greenspan in describing his views to friends makes an interesting point: As Fed Chairman his job, because of the fortunate timing of having China and other Asian economies serve as a disinflationary global force, was relatively easy. In the future, however, Bernanke's task could prove more difficult as the Asian disinflationary effect becomes less pronounced, as global commodity prices continue to rise, and as the world continues to boom at a time when the U.S. economy enjoys little slack (and with productivity growth having leveled off). Greenspan's conclusion: U.S. long-term interest rates have no choice but to eventually exceed 4 percent with market lending rates in the 6-7 percent range.

Greenspan's thesis has already spawned a fascinating debate, particularly in light of Bernanke's call for inflation targeting and the European Central Bank's mandated target for inflation "below and approaching 2 percent." The debate poses the question: Can a central bank with a roughly 2 percent inflation target by definition experience much...