Alan Greenspan

Alan Greenspan

Who is Alan Greenspan, and what does he do?

Alan Greenspan is an American economist who served as Chairman of the Board of Governors of the Federal Reserve System (Fed) from 1987 to 2006. He also served as the chair of the Federal Open Market Group (FOMC), the Fed's main monetary policymaking committee, which determines interest rate decisions and manages the US money supply.

Greenspan is most remembered for overseeing the Great Moderation, a period of relatively steady inflation and macroeconomic growth that lasted from the mid-1980s until the financial crisis of 2007.

TAKEAWAYS IMPORTANT

·       Alan Greenspan is a former chairman of the Federal Reserve and an American economist.

·       The Great Moderation, or the long-term maintenance of low, steady inflation and economic growth, was central to Greenspan's strategy.

·       Greenspan's "loose money" expansionary monetary policy has been criticised in part for fuelling the dot-com boom in 2000 and the 2008 financial catastrophe.

·       The initial difficulty that Greenspan faced as chairman was coping with the catastrophic 1987 stock market crisis.

·       Some perceive Greenspan to be a hawk when it comes to inflation fears. He was chastised for concentrating more on price control than on reaching full employment.

Early Childhood Development and Education

Alan Greenspan was born on March 6, 1926, in New York City. He earned bachelor's, master's, and doctorate degrees in economics from New York University, as well as studied economics at Columbia University in the early 1950s under Arthur Burns, who would later become chairman of the Federal Reserve Board of Governors for two consecutive years.

Greenspan's first job, in 1948, was working for a non-profit that analysed steel, aluminium, and copper demand. Greenspan then led Townsend-Greenspan & Co., Inc., an economic consultancy business in New York City, from 1954 to 1974 and 1977 to 1987. Greenspan began his public service career in 1974, when he was appointed head of President Gerald Ford's Council of Economic Advisers (CEA).

Greenspan succeeded Paul Volcker as the Fed's 13th chairman in 1987. Greenspan was appointed to the position by President Ronald Reagan, but he was re-appointed by three other presidents, George H.W. Bush, Bill Clinton, and George W. Bush, for a total of four terms. He served as chair for more than 18 years before retiring in 2006 and being succeeded by Ben Bernanke. After departing, he released his book, The Age of Turbulence, and founded Greenspan Associates LLC, a Washington, DC-based consulting firm.1

Alan Greenspan was noted for achieving policy unanimity among Fed board members and for serving during one of the most severe economic crises of the late twentieth century, the stock market crash of 1987. Following the crisis, he called for reducing interest rates dramatically to save the economy from collapsing into a deep depression.

Policies and Actions of Alan Greenspan

Greenspan ruled over one of America's most affluent times, owing in no little measure, supporters believe, to his leadership of the Federal Reserve. Nonetheless, several of his ideas and acts were divisive at the time and in retrospect.

Inflationary Opinions

Greenspan earned a reputation as a hawk on inflation early in his career, thanks in part to his support for a return to the gold standard in monetary policy in the 1967 article "Gold and Economic Freedom."

Early detractors described his reportedly "hawkish" position as a preference for forsaking economic progress in order to avoid inflation. Greenspan ultimately changed his mind as Fed chairman, admitting in a 1998 speech that the new economy might not be as vulnerable to inflation as he had feared. 3

 

Greenspan's ostensibly aggressive attitude was, to say the least, flexible in fact. In comparison to his predecessor, Paul Volcker, he was plainly ready to risk inflation in the event of a catastrophic slump, and he undoubtedly adopted a generally cheap money policy. Greenspan presided over interest rate cuts in the early 2000s that were unprecedented in many decades.

Interest Rates Flip-Flop

After the dot-com boom broke in 2000, Greenspan called for lower interest rates. After the World Trade Center assault on September 11, 2001, he did it once again. Following 9-11, Greenspan led the FOMC to cut the Fed funds rate from 3.5 percent to 3 percent right once, and over the next few months, he pushed to get it down to a new low of .percent, which he held for a full year.

Those rate decreases were challenged by some as having the potential to fuel asset price bubbles in the United States. Greenspan's pro-inflationary policies, especially during this time period, are widely believed to have led to the U.S. housing bubble, following the subprime mortgage financial crisis, and the Great Recession, while Greenspan and his defenders deny this.

Increasing the Use of Adjustable-Rate Mortgages

 

Greenspan proposed in a 2004 speech that more homeowners should consider taking out adjustable-rate mortgages (ARMs), in which the interest rate adapts to market interest rates.

Interest rates subsequently climbed throughout Greenspan's tenure as inflation escalated.

 Many of those mortgages were reset to considerably higher payments as a result of the increase, causing even more misery for many homeowners and aggravating the crisis.

 

The "Greenspan Put" is a strategy devised by Alan Greenspan.

The "Greenspan put" was a popular monetary policy tactic under Greenspan in the 1990s and 2000s. Throughout his presidency, he worked to assist the US economy by aggressively lowering interest rates using the federal funds rate to combat asset price bubble deflation.

In financial markets, the Greenspan put produced a significant moral hazard. Informed investors could anticipate the Fed taking predictable moves to bail out investors' losses, distorting market players' incentives. 7 This produced a climate in which investors were encouraged to take excessive risk since Fed monetary policies, including buying put options on the open market, tended to reduce their potential losses in the event of a market downturn.

How long did Alan Greenspan serve as Chairman of the Federal Reserve?

Alan Greenspan was Chairman of the Federal Reserve for five terms, from 1987 to 2006.

Alan Greenspan was appointed by whom?

In 1987, President Ronald Reagan named Alan Greenspan as Chairman of the Federal Reserve.

Who Will Take Alan Greenspan's Place?

When Ben Bernanke was named Chairman of the Federal Reserve in 2006, he took over from Alan Greenspan. Bernanke was chairman of the Federal Reserve until 2014.

What Is Alan Greenspan's Age?

Alan Greenspan was born on March 6, 1926, and as of June 2021, he will be 95 years old.

 

Alan Greenspan's Wife: Who Is She?

In 1997, Alan Greenspan married Andrea Mitchell, a journalist.

What Is Alan Greenspan Up To These Days?

Greenspan has worked as an advisor through his firm, Greenspan Associates LLC, since leaving the Fed.

Final Thoughts

The success of Alan Greenspan's five terms as Chairman of the Federal Reserve depends on who you ask, as it will for many other government leaders. Greenspan did, however, encounter several significant problems throughout his tenure, including the 1987 stock market crisis and the World Trade Center attacks.

Overall, Greenspan was instrumental in establishing a robust US economy in the 1990s. Opinions differ on how much his activities contributed to the economic downturn that began soon after his reign ended.