Brit fawning over AG

["Ian Murray" <seamus2001@xxxxxxxxx>]

< http://www.independent.co.uk >
The US recovery is in doubt: How much longer can Greenspan walk on water?
Fed chairman's reputation as a miracle worker is once more being
questioned
By Rupert Cornwell in Washington
08 May 2002

The ritual played out as always yesterday. True, no change in policy was
expected from the latest session of the Federal Reserve's rate-setting
open market committee as it surveyed the delicately poised US economy.

But once again, just as on each similar occasion over the past 15 years,
the global financial community fastened its gaze on a single man.

Alan Greenspan is not only the chairman of the Fed, and as such the most
powerful moneyman in world. His record of presiding over the longest
period of economic expansion in his country's modern history, has made
him a legend. Every quizzical gaze through those thick black-rimmed
spectacles is evaluated. His every tortuous pronouncement is hung upon,
and endlessly dissected. His followers' faith in his powers is almost
religious.

Indeed Greenspan's Fed has been compared to the Catholic Church; with its
Pope and his infallible ex-cathedra pronouncements, its college of
cardinals (the board and regional bank presidents), the curia of the Fed
bureaucracy, and a laity of the commercial banks.

For the sinner in need of a prayer (or rather a loan) there is the
discount window, while like the Jesuits and opus Dei, the Fed has its own
orders - Keynesians, monetarists and pragmatists - who quietly wrestle
for dominance.

Over the years, it should be said, Greenspan has had his critics. Fans of
George Bush Sr still blame him for the monetary tightening which provoked
the 1990-91 recession and thus perhaps the former President's election
defeat a year later.

In 2000, as the dot.com collapse threatened a general slide into
recession, the talk was that Greenspan should have raised interest rates
sooner and more steeply, to prevent a perilous asset bubble.

Such heresies vanished after 11 September. Having reduced interest rates
just before the terrorist attacks, the Fed cut them even more
aggressively afterwards - 11 times in all in the whole of 2001, reducing
the benchmark federal funds rate to 1.75 per cent, the lowest since the
Kennedy administration.

It was a risky strategy, all but depriving the central bank of any
further margin for manoeuvre if the economy did not respond. But the
trick seems to have worked, at least in the short term. The slump feared
by many did not materialise, and some contend there was not even a
recession at all.

Greenspan may have accomplished not just the desired "soft landing," but
the even greater feat of an "on-off landing," in which the economy's
wheels merely brush the tarmac of zero growth before soaring off once
more.

No-one expects this recovery to be as strong as its predecessor.
Underlying GDP growth is probably about 3 per cent, not the first
quarter's provisional 5.8 per cent, inflated by a warm winter and an end
to previous inventory run-downs. The dollar is wobbly and the stock
market is flagging.

Last week's jump in unemployment suggests that consumer spending, whose
resilience last year staved off a serious slowdown, will remain flat. But
other underlying indicators, not least productivity which leapt almost 9
per cent in the first quarter, are encouraging. Few would bet against the
master pulling it off again.

Apart from his sheer technical mastery of the economy, two other
qualities over the years have helped Greenspan mightily; ultra-keen
political antennae, and an instinctive flexibility. He has served eight
years under a Democrat, and seven under three Republicans, and the
transitions have been seamless - none more so than in 1993 when Greenspan
quickly won the confidence of Bill Clinton and encouraged the new
President in his politically risky $500bn deficit reduction package.

The result was the virtuous circle of the 1990s, of falling interest
rates, solid growth, low inflation and a vanishing budget deficit.

Greenspan is one vestige of the Clinton era which George W Bush has
happily embraced; in return, perhaps against his better judgement, the
Fed chairman has gone along with Mr Bush's tax cuts, which have wiped out
the Clinton fiscal surplus.

He is the least doctrinal of central bankers. He is an empiricist ready
to place the evidence of his own eyes ahead of conventional wisdom - as
when he concluded the economy could be run safely with unemployment of
only 5 per cent and long-term growth of more than 2.5 per cent, without
unacceptable inflation.

His pedigree may have been free-market, but his responses to financial
crises have invariably been interventionist. After 1987's "Black Monday"
he unhesitatingly threw the Fed's weight (and money) behind Wall Street.
He backed the 1994 Mexican bail-out, which contrary to predictions was a
great success.

Greenspan was swift to act to prevent the 1997-98 Asian and Russian
financial crisis infecting the entire global financial system - and, far
more controversially, to rescue the derivatives and futures trader Long
Term Capital Management in 1998, when he sensed its unravelling might
provoke a broad market crash.

For him, each economic cycle is different. The constant is his awareness
of the terrifying speed of markets, and his knack of nudging the global
electronic financial herd in the direction he wishes it to take.

An unorthodox background may explain this adaptability. He was an only
child, an arithmetician and baseball enthusiast, but above all a keen
musician whose ambition was to play professionally in a band. But the
accomplished clarinet and saxophone player was an even better bookkeeper,
who kept his swing band out of the financial troubles that bedevilled
many of its rivals.

But his musical career lasted only a year. By 1946 he had enrolled at New
York University to study economics, and his future course was set.

Along the way were a succession of strong-minded and unusual women. His
first wife Joan Mitchell was a painter. Though the marriage was
shortlived, she introduced him to another powerful, lifelong influence,
the Russian emigre novelist Ayn Rand, a leading exponent of
"objectivism," or enlightened self-interest.

In the 1970s he dated the redoubtable ABC anchor Barbara Walters, before
taking up with Andrea Mitchell, the NBC television correspondent, who
after a 12-year courtship became his second wife in 1997.

But increasingly a question disturbs the adoration of the markets. Even
Greenspan cannot juggle the law of anno Domini. He is 76 now, and will be
78 when his current four-year term expires in June 2004, just five months
before the next Presidential election. For how much longer will this
infinitely reassuring one-man show continue?

Were Mr Bush to keep him in the job, Greenspan would have to step down in
2006, when he will have completed the maximum 14 years of a Federal
Reserve Board member, on top of the unexpired portion of the term of his
predecessor Paul Volcker.

Markets moreover abhor uncertainty, so it would make sense for a
successor to be publicly groomed now, just as Greenspan was long regarded
as the heir apparent to Volcker. The present uncertainties are a sign of
what could go wrong between before 2006. So why not bow out at the top
with reputation unsullied, having shepherded the economy safely through
the trauma of 11 September?

The trouble is, Greenspan manifestly loves being chairman. "He really is
at the top of his game,"one economist who knows him said recently, "He is
having too much fun in the job, I would be extraordinarily surprised if
he stepped down early."

The Princeton economist Alan Blinder (the Fed vice-chairman who resigned
in 1996 because of the dim prospects of career advancement) agrees. "I
expect him to be on the job for several more years."

And as long as Greenspan is chairman of the Fed, one ritual will remain.
Each day he takes an early morning working bath. They started as a cure
for backpains; now they are where the great man thinks his most
penetrating economic thoughts, his inbox close to hand. Greenspan once
maintained his IQ was 20 points higher at 6am than at 6pm. Which may be
splendid news for the country's economic management - but not for the
hapless secretary who must type up his soggy memos.

ORACLE SPEAK IF I'VE MADE MYSELF CLEAR, YOU MUST HAVE MISUNDERSTOOD ME

Central bankers through the ages have abhorred nothing as much as a
reporter's microphone or notebook. "They're like squid," the Nobel prize
winning economist Robert Solow once joked, "They emit a cloud of ink and
move away." None however has squirted out the clouds as skilfully as Alan
Greenspan.

After an unfortunate early on-the-record appearance that sent financial
markets into a spin, the Fed chairman has never again spoken to reporters
in public. Instead a chosen few, from papers such asThe New York Times,
The Washington Post and The Wall Street Journal are granted occasional
audiences.

Thus the chairman's only public utterances are on his regular visits to
Capitol Hill, and to carefully chosen assemblies of high finance's great
and good. And here, obfuscation or "Fed-speak" is the name of the game.

Greenspan's proudest moment is a speech in June 1995 that prompted a New
York Times headline reading, "Greenspan Sees Chance of Recession," and
one in the Washington Post saying, "Recession Is Unlikely, Greenspan
Concludes."

But who can blame the headline writers facing such Everests of banality
as "In an economy that has already lost some momentum, one must remain
alert to the possibility that greater caution and weakening asset prices
could signal or precipitate an excessive softening in household or
business spending."

Translation: In a slowing economy, things could get worse. Or not.

"If I've made myself clear, you must have misunderstood me," Greenspan
has said, in deadly earnest.

And there is the touching tale of how when he proposed to his companion
of 12 years, the TV journalist Andrea Mitchell, he had do so twice before
she understood he was asking her to marry him. So much for irrational
exuberance.