Winston Churchill once said "History will be kind to me, for I intend to write it". So he did, and so, mostly, it has. Former Fed Chairman Alan Greenspan, now doing the chat show circuit to promote his memoirs ("The Age of Turbulence"), is unlikely to be so lucky.
I met "the Maestro" a couple of times, before he was famous, and was never a subscriber to the cult of personality that grew up around him. His halo began to slip noticeably soon after he quit the Fed Chairman's role at the start of 2006, and undermined his successor, Ben Bernanke, in a series of ill-judged (but doubtless well-rewarded) speaking assignments even before Bernanke had had a chance to organise his pencil tray. Maybe Greenspan is unfortunate to be releasing his memoirs at the exact moment when the chickens he fed for so many years are coming home to roost, but there's no doubt that he's facing a hostile reception in some quarters: here, for example.
Greenspan was the most political of Fed Chairmen. His views on fiscal policy depended primarily on who was asking (and even he now admits that his endorsement of the Bush tax cuts was a mistake). But the key charge against him has to relate to monetary policy, specifically his willingness to allow unprecedented amounts of money growth at unprecedentedly low interest rates for unprecedentedly long periods of time, even when it became clear that the US economy was in no need of such support. The explosion of cheap money unleashed by Greenspan, in response to the LTCM crach, then the tech crash, and finally the September 2001 terrorist attacks, directly created the severe problems in credit markets that are now unfolding.
Even at the time, Greenspan's justification for this approach -- that it was safe because inflation was so low -- did not stand up to much scrutiny. Greenspan's attitude to inflation was supposedly a monetarist one, best summed up in Milton Friedman's famous quote that "inflation is always and everywhere a monetary phenomenon". However, a more accurate description of his view would be that "inflation is whatever I say it is". He (and thus the Fed) changed his view on what was the best measure of inflationary pressures with remarkable frequency. The only certainty is that it never focused on either the money supply or the widely-followed consumer price index (CPI). For a number of years the Fed appeared to focus on the Employment Cost Index (ECI), but toward the end of his tenure, Greenspan appeared to switch his allegiance to the snappily-named core personal consumption expenditure deflator.
There are good technical reasons for preferring this measure to the CPI, principally the fact that it reflects actual spending patterns rather than the arbitrary and inflexible basket used in computing the CPI. But over the past decade, both of these measures have had a fatal flaw as guides to US monetary policy: they have been held artificially low by the flood of cheap imports coming into the US, mainly from China. These have kept prices down all right, but it's not something that the Fed or Greenspan in particular can take any credit for. In focusing on the apparently tame behaviour of the various price indices, Greenspan and pals turned a blind eye to the buildup of financial market risk that inevitably flowed from the tidal wave of cheap money. Indeed, with his reflexive monetary easings in response to every setback, Greenspan convinced a lot of investors that he would always act to cushion those risks -- the so-called "Greenspan put". (It's largely in reaction to this that Bank of England Governor King was initially inclined to take a hard line in the current crisis).
Now the great man is bloviating (reportedly at $100k per throw) about the inevitability of a recession in the US and a housing crash in the UK. If you're a Northern Rock customer worried about your savings (you probably needn't) or a Northern Rock employee worried about your job (sadly, and through almost no fault of your own, you should be), make sure you know who to blame.
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