Master Of The Universe Retired

By Guest Contributor

Luis Martin

Alan Greenspan, born March 6, 1926 in New York, New York – became chairman of the Federal Reserve and one of the most powerful financial men in America, from 1987 until his retirement in 2006.

By the 1970s he was advising presidents Richard Nixon and Gerald Ford and in 1987 he was named Chairman of the Board of Governors for the Federal Reserve System. He held the post under presidents Ronald Regan, George Bush, Sr., Bill Clinton and George W. Bush.

As chairman, Greenspan was largely responsible for directing U.S. national monetary policy; he is often credited with keeping inflation at historically low levels, and is sometimes criticized for the boom-and- bust nature of the economy in the so-called dot-com era of the 1990s. On January 31, 2006, he stepped down from the post and was succeeded by former Princeton economics department chair, Ben Bernanke.

If Alan Greenspan could stand in front of a TV camera today and say, ‘The economy is going down in a huge flaming pile just like the Hindenburg,’ the chances are good the economy would tank within the hour.

In all honesty, the former chairman of the United States Federal Reserve Board is not the most intimidating man in the world. In fact, he studied the clarinet and saxophone at New York’s Juilliard School before getting an economics degree and a Ph.D. that he conferred without a dissertation. He certainly does not inspire awe when compared to an economic giant like Bill Gates or a leader like Sir Winston Churchill, but when Greenspan speaks the world trembles.

Essentially, the chairman of the Federal Reserve Board is a bullfighter and a bear-baiter all in one. The chairman keeps balance by altering the benchmark interest rate. When the economy is growing too fast, resulting in inflation and a possible bubble, the chairman uses the blade of interest rate hikes to slow down the rampage so no one gets hurt. When the economy is in a slump, the chairman can lull it out of hibernation. In the most basic terms, the chairman makes money easy to borrow in hard times and harder to borrow in easy times.

Although the role of the Fed may seem very clear cut, the job of chairman of the Federal Reserve Board is surrounded by a murky gray fog. For example, when does an economic slump require lower interest rates to recover? At what point is action preferable to patience? Should the economy be intentionally slowed down?

As an investor, you probably want lower interest rates in order to maximize corporate profit and, therefore, your own returns. If a person holds a significant position in the market and is financially competent, all but the most extreme inflation is palatable. The ideal situation for investors is one where business is allowed as much room for growth as possible.

However, the chairman of the Federal Reserve serves the economy as a whole, transcending both the interests of Wall Street and the policies of any particular political administration. The chairman must also consider the unemployed and working poor for whom inflation equals fewer meals per month.

And so it is that you have two types of chairmen: hawks and doves. Doves are more accepting of inflation in order to spur the economy, whereas hawks are primarily concerned with limiting inflation rather than encouraging growth. Alan Greenspan was a hawk. Thus, he and Wall Street often found themselves at odds.

Greenspan was famed for his ambiguous manner of speaking, largely due to keeping the markets from overreacting to his comments. As his prominence grew, the damage that his speeches could do also increased. If finance was a religion, Greenspan was the pope.

His biggest mistake was not an interest hike or cut, but a comment he made when President George W. Bush took office. In a rare moment of comprehensible speech, Greenspan suggested that not only was there enough economic shoulder room for tax cuts, but there was a danger of the national debt being paid down too fast. {It is important to note that Greenspan did not specifically endorse the $1.6 trillion number Bush was looking to implement.}

He was not always right, but with a combination of patience and adaptability he was able to keep the ship on an even keel. There is a chance that the current chairman, Ben Bernanke, and the people after him will be remembered as daring sailors who kept the economy afloat in a sea filled with ships equal to and larger than the American fleet.

Perhaps Alan Greenspan’s legacy will someday pale in comparison to those that follow him. But will any of them be able to finish a day of grilling questions in front of the Senate and then go to a club and play swing music on the saxophone without missing a beat?

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