Fed Chairman Alan Greenspan`s Legacy
Thursday, July 01, 2004SUSIE GHARIB: Fed Chairman Alan Greenspan`s personal economy treaded water last year. New financial disclosure forms show Greenspan was worth between $3 million and $6.4 million in 2003. That`s the same asset range he reported in 2002. His holdings are in Treasury securities and money market accounts, considered the world`s safest investments. But even those will be affected as Greenspan and the Fed embark on the campaign to raise interest rates that began yesterday. As Darren Gersh reports, it`s the beginning of the end for Greenspan`s legacy at the central bank.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: By now, it is accepted wisdom in Washington that Alan Greenspan will be remembered as the greatest Federal Reserve chairman of all time, provided of course he wins his latest battle: keeping the economy on track without letting inflation get out of hand. Former Fed Governor Lyle Gramley has no doubt Greenspan will succeed.
LYLE GRAMLEY, FORMER FEDERAL RESERVE GOVERNOR: The only issue is how large an increase in interest rates it`s going to take. Now with a little luck, the amount of tightening of monetary policy won`t have to be all that severe.
GERSH: By law, Greenspan must step down in January 2006. His legacy is largely in place. But as the chairman said himself, success in guiding the economy over the next year will not be what golfers call a "gimme putt."
THOMAS SCHLESINGER, EXEC. DIR., FINANCIAL MARKETS CENTER: He and his colleagues at the Fed may find themselves in the rough or a sand trap over the next 16 months.
GERSH: But it is sobering to consider the hazards the chairman has already navigated: deflation; 9/11; the Russian bond default; Y2K; the Asian financial crisis; and on and on. Along the way, Greenspan has also turned many a famous phrase.
ALAN GREENSPAN, CHAIRMAN, FEDERAL RESERVE: How do we know when irrational exuberance has unduly escalated asset values?
GERSH: Critics say he could have done more to pop the Internet bubble, that he was too slow to cut interest rates in the recession of 1990, that he gave the green light to budget busting Bush administration tax cuts. And the Greenspan Fed-- philosophically deregulatory-- has had a mixed enforcement record.
SCHLESINGER: Nobody is really minding the store on the regulatory front.
GERSH: On the economic front, the chairman devours information over his tenure, tripling the amount of data the Fed collects. That famous attention to detail led Greenspan to what may be his greatest achievement: recognizing that a more productive economy could grow faster without generating inflation and the need for Fed tightening. Former Fed governor Laurence Meyers remembers seeing the data maven in action during a board debate on the course of inflation.
LAURENCE MEYERS, FMR. FEDERAL RESERVE GOVERNOR: And then the chairman asked, "what`s been happening to steel ingot prices?" OK, something really micro. He just loves this disaggregated data and everybody just started laughing. None of the rest of us had even thought about steel ingot prices, were going to remember what the price was or what`s happening or would be that much affected by it. It`s just his mind works differently.
GERSH: So differently, that Greenspan has rewritten some economic theory.
ALAN BLINDER, FMR. FEDERAL RESERVE VICE CHMN.: We`ve been teaching our students in universities for a long time that fine tuning is impossible. While we`re teaching this, we have this gentleman named Greenspan, sitting on Constitution Avenue, twiddling the dial very finely.
GERSH: Blinder says that is likely to be Greenspan`s most lasting legacy and a tough standard for the next person who holds the job. Darren Gersh, "NIGHTLY BUSINESS REPORT," Washington.
