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The Analyst Magazine:
End of Green(span) Years for Economy?
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Alan Greenspan - the most intently watched central banker-has become the `missing variable' of tomorrow's economic predictions. It's not a year or two, five or ten; it is eighteen and a half long years, after which Alan Greenspan laid down the office as the Chairman of the Federal Reserve. He has been showered with accolades from across the globe. He has been acclaimed as the "the greatest central banker who ever lived". There are of course enough reasons for everyone to praise his performance at Fed, for its impact is often found influencing the rest of the global economy too. Secondly, his handling of Fed policies has not only provided impetus to sustain growth in the US economy but also helped emerging economies such as China, Russia, and India that were integrating themselves into global economieseither by design or by default.

 
 
 

Ever since he took over the reins of Fed from Paul Volcker, he has pursued the singular objective of `price-stability' and he did succeed in accomplishing it except for a blip or two in his long and eventful journey. He could also succeed in steering the American economy through two major crises: The 1987 stock market crash that occurred immediately after his taking over the reins of Fed and the bursting of the dotcom bubble in 2000-01. He provided a massive monetary stimulus for the strong growth of American economy for 10 years on the trot. Fed maintained real interest rates negative for several years and even now real rates are notoriously low.

Inflation averaged at around 2.4% per year during Greenspan's era as against 3.7% per year from the end of World War II to the Volcker's tenure. This greater price stability can be described as his greatest contribution to the economy, for it enabled enterprises use their resources more efficiently and steadily. This performance has obviously made Milton Friedman-the Noble Laureate in Economics-to say: "there is no other period of comparable length in which the Federal Reserve System has performed so well". In accomplishing all this success, Greenspan has not only demonstrated that it is possible for central banks to maintain stable prices but also set a standard for the other central banks around the world.

Every central banker is essentially judged for his performance by how well he managed the value of the national currency and on that score Greenspan did a better job than all his predecessors. The fact that he did so by liberally supplying dollars to the world despite strong criticism from a section of economists and the underlying threat of raising bubble in the stock market or real estate, is all the more remarkable. There is courage of conviction rather than a method in madness of his pursuit of such monetary policies. Similarly, his handling of financial markets deserves all praise. His tenure witnessed fewer bank failures despite two bouts of recession. His handling of LTCM debacle in 1998, whose failure was considered "potential enough to seize markets, inflict substantial damage on many market participants including those not directly involved with the firm, impair the economies of many nations, including that of the US", is in itself a testimony to the understanding Greenspan had about the financial markets and his ability to manage financial crises with finesse.

 
 

The Analyst Magazine, Alan Greenspan, Global Economy, American Economy, Stock Markets, Financial Crisis, Economic Models, Information Technology, US Monetary Affairs, Emerging Economies, Financial Markets, Globalization, Bond Market, Fed Policies, Federal Reserve System, National Currency, Monetary Policies, Long-Term Capital Management , LTCM.