Greenspan tends legacy, no successor yet
finance.myway.com
Alan Greenspan, his legacy under the microscope after 18 years as chairman of the Federal Reserve, heads for the annual central bankers' retreat in the Rocky Mountains to face the judgment of his peers.
The 79-year-old is to step down at the end of January when his term on the U.S. central bank's board of governors ends, making the focus of this year's gathering -- the Greenspan years -- particularly timely.
The weekend in Jackson Hole, Wyoming, will likely both render a verdict and fan speculation over his successor.
On Friday morning, Greenspan will reflect on his chairmanship, which began on Aug. 11, 1987, just two months before the "Black Monday" stock market crash that saw stocks take their biggest one-day tumble in history.
The Fed's vow to keep the financial system liquid not only calmed investor nerves but set a positive tone for Greenspan's early days as heir to Fed chief Paul Volcker.
By any gauge, he has navigated some tumultuous waters, from a credit crunch in the early 1990s, when banks restricted business lending, through currency crises in emerging economies from Mexico to Argentina, to the failure of the Long Term Capital Management hedge fund and the terror attacks of 2001.
One of the question marks hanging over his place in history is whether or not stratospheric housing prices in many key U.S. markets, partly fueled by low interest rates, may turn out to be another dangerous asset price bubble.
Greenspan parries criticism for not slowing the 1990s technology stock surge by saying it is hard to spot unhealthy rises in asset bubbles soon enough and best for policy-makers to focus on buffering the economy from the fall.
Detractors aside, the Fed chief did help engineer the longest peacetime boom in U.S. history -- 10 straight years from the end of the 1990-91 recession in March 1991 to a second, mild slump in 2001. That alone would have guaranteed his spot as a successful manager.
Over his tenure, U.S. gross domestic product has grown at a solid average of just over 3 percent a year and consumer price inflation also has averaged a little more than 3 percent.
Analysts say this adds up to a record unmatched in other economies and reflects Greenspan's nimble policy-making approach, one that relies less on rules than adaptability to rapidly changing global economic conditions.
"Policy pragmatism has been his distinguishing modus operandi," said David Jones of DMJ Advisors and author of several books on the Fed.
"Along the way, there also have been major innovations and probably his best one is transparency: Recognizing the need to communicate continuously with markets in deciding how policy will be formulated."
The need for more economic flexibility has long been a Greenspan mantra. In January 2004, he told a British Treasury conference: "The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances and thus to contain the size and consequences of cyclical imbalances."
It is these unanticipated disturbances and their aftermath that truly test a central banker's mettle.
After the 1987 stock market crash, again in 1998 when currency crises rippled through Asia and Russia defaulted, and after the 2001 terror attacks, Greenspan boosted liquidity to cushion the impact on the U.S. economy -- preemptive actions that did not follow set policy prescriptions.
Economists said this was one of the former jazz musician's defining characteristics.
"Essentially, the major innovation that he brought to the office has been his own approach, a completely eclectic and open-minded approach," said economist Allen Sinai of Decision Economics Inc. in Boston.
"He is an individual who has no prior doctrinal or brainwashed view, who understands that the world is changing so rapidly that it cannot be encapsulated by one theory of how monetary policy should work."
Because of the indelible mark he has left on the world economy, filling Greenspan's shoes is one of the toughest tasks now facing the Bush administration. And by most accounts, the White House is taking its time.
Earlier this month, administration officials described the process as at "a very loose stage of gathering names and trying to think broadly about everyone who could conceivably be possible."
Three potentials are regularly mentioned -- Glenn Hubbard, a past adviser to President Bush; Harvard economist Martin Feldstein; and Fed Governor-turned-White House adviser Ben Bernanke -- but the White House has indicated it also is looking elsewhere, possibly toward Wall Street.
Given Greenspan's out-sized reputation and long reign, some transition period might have eased the way for an understudy.
"It would have been useful to have had a nomination of a successor prior to Jackson Hole because, in a way, Jackson Hole is a farewell to Chairman Greenspan," Sinai said.
Greenspan's first love -- before music and economics -- was baseball. And in the long run, Sinai predicts he will have the statistics to cement his place in the top ranks of Fed chiefs.
"I think that Greenspan will rank as one of the most effective and innovative Fed chairman that we have had -- a home-run champion," Sinai said. |
