ANALYSIS: CLINTON HAD LITTLE CHOICE BUT TO REAPPOINT GREENSPAN
By Steven K. Beckner
Market News International - Like President Bush before him, President Clinton really had little choice but to reappoint Alan Greenspan as chairman of the Federal Reserve, as Clinton announced he would Tuesday morning.
Despite recent speculation that Clinton might choose someone to replace Greenspan, the job was always Greenspan's to refuse or to retire from.
Only Greenspan's age -- he will soon be 74 -- made it at all plausible that he might retire or be replaced. But Greenspan clearly relishes the responsibility of running the world's most important central bank, dealing with whatever challenges that may arise. And his age belies his physical and mental vigor.
When he made Clinton aware of his willingness to serve a fourth term, the president's decision was all but made for him.
It probably would have been unrealistic for the Clinton administration to think it could win confirmation for a Democratic nominee to the crucial Fed chairmanship in an election year from a Republican Senate anyway. But beyond that, it would have been foolish for Clinton to try to shoehorn someone like Robert Rubin or Lawrence Summers into Greenspan's hard-to-fill shoes.
No one has the market cachet of Greenspan. No one Clinton could have chosen would have assuaged the anxiety that would surely have arisen on Wall Street, Main Street and around the world if he had shockingly decided not to reappoint Greenspan.
With the economy in its record ninth year of noninflationary expansion and job creation, why risk rocking the economic boat? Why risk rattling markets, which while ostensibly stable, are vulnerable? In short, if Greenspan was willing to serve another term, why beat a willing horse?
Bill Clinton has been accused of many things, but political incompetence is not one of them. He rejected the counsel of some of his own advisors, as well as allies in Congress, in reappointing Greenspan to a third term on Feb. 22, 1996 and stood by the nomination as Senate Democrats delayed confirmation until June 20, 1996.
Four years earlier, Bush had even less reason to reappoint Greenspan, and there were plenty of Republicans who thought he should not be. The ravages of recession and credit crunch had all but doomed Bush's reelection chances. Nevertheless, Bush felt he had little choice but to name Greenspan to a second four-year term as chairman on March 2, 1992.
This time around, it was not just that Clinton and Greenspan got along. Understandably, given the prosperity his administration has enjoyed, Clinton has enjoyed a fairly good relationship with the Greenspan Fed. But, claims to the contrary notwithstanding, he and his advisors have not always been pleased with Fed policies and have not always refrained from pressure or criticism.
What reappointment came down to in 1996, and again in 2000, was Clinton's realization that failure to reappoint the legendary central banker could have untold financial and economic repercussions. As Market News International has previously stated, Greenspan would get a fourth term if he desired it.
The president signaled long ago that, in all likelihood, he would reappoint Greenspan when the time came. At a July 21, 1999 press conference, he said Greenspan "has done a terrific job." He said at that time he had "no idea whether he would even be willing to serve another term," but added he planned to "make the decision in a timely fashion" because he did not want the Fed Chairmanship "to become embroiled in election-year politics."
Few would dispute Clinton's appraisal that Greenspan has done "a terrific job," although there are those who quibble with certain facets of Greenspan's long record. There is no gainsaying the fact that, since taking office in Aug. 11, 1987, Greenspan first achieved and then sustained a climate of price stability that reduced uncertainty, brought down the cost of capital and thereby opened the way to an investment boom that improved productivity and permitted the economy to grow more rapidly at lower rates of unemployment.
In recent years, the United States has withstood horrendous shocks that might have wrecked a less stable economy. Greenspan has not been flawless. He failed to anticipate the severity of those famous "headwinds" buffeting the economy in the early nineties. Arguably, the Fed could have cut interest rates more rapidly then. And it took Greenspan awhile to make his peace with the record stock rally that accompanied the productivity revolution, leaving him with egg on his face for his notorious "irrational exuberance" comment of 1996. More recently, he has been accused of allowing a speculative bubble to form.
But Greenspan's successes dwarf his foibles. Despite criticism that his policies have been "anti-growth," one of the qualities he has demonstrated in recent years has been a willingness to adapt his thinking on the economy's ability to grow without inflation and to limit credit tightening accordingly.
Even if he serves out his fourth term, which would expire in 2004, Greenspan would fall short of William McChesney Martin's record 19 years as Fed Chairman. But, in most minds, Greenspan has already eclipsed Martin and his other predecessors in terms of actual accomplishments.
In the coming four years, Greenspan could confront challenges that rival those of his previous 13. Despite the economy's apparent soundness, stock prices have risen to levels that almost seem to invite a damaging correction under certain circumstances. One possible trigger, as Greenspan is aware, is a loss of foreign investor confidence in the dollar due to the ever-widening current account deficit.
To the Fed's way of thinking, the current account deficit is just one indication of the savings-investment imbalance and excess demand that invites trouble. Another big Fed worry is the shrinkage of the pool of available workers.
Greenspan's next great task will be to decompress the expansion and head off inflation without precipitating a market crash and an economic downturn. That would be the task of anyone sitting in the Fed hot seat, but people around the world can feel a little more secure knowing that Greenspan will be at the helm. |
