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verfasst von Ghandi, 02.04.2001, 20:54

Suddenly, Critics Are Taking Aim at Greenspan

By RICHARD W. STEVENSON

WASHINGTON, April 1 — He raised interest rates too much last year, a sudden chorus of critics is saying, and he has not cut them enough this year.

He was just another dot-com sucker, they say, taken in by the"new economy" claptrap even as the boom in the United States headed inexorably toward a bust. Like those former stock-option millionaires who are now back home cadging room and board from Mom and Dad, they suggest, he could use a dose of humility.

With the decade-old economic expansion in danger, stock prices tumbling and the Federal Reserve no longer seeming omnipotent or omniscient, Alan Greenspan, who at 75 is in his 14th year as chairman of the central bank, is being second- guessed as never before.

Under his leadership, the Fed is"behind the curve," Merrill Lynch recently told its clients. John H. Makin, an economist at the American Enterprise Institute, a conservative research organization here, called the Fed's current attitude"disconcertingly complacent." A survey of business economists found them less comfortable than at any time in years with the Fed's conduct of monetary policy.

"The financial markets no longer trust him, and millions of Americans don't, either," the conservative commentator Bill O'Reilly said last week on the Fox News Channel.

However fair or unfair the criticism — and Mr. Greenspan still has plenty of admirers and defenders — it gets at a broader question: To what degree can the country count on the Fed chairman and the central bank's control over interest rates to avert a recession?

It was perhaps inevitable that he would be cut down a notch during a period when CNBC is charting the nation's diminished wealth minute by minute and President Bush is warning of trouble ahead — especially since Mr. Greenspan's reputation as the infallible ringmaster of the economy was no doubt overblown when times were good.

"The perception of him has slipped, although I'm not sure it's warranted," said Robert B. MacIntosh, chief economist at Eaton Vance, a mutual fund manager."His job is not to give people 40 percent returns on their stock holdings. His job is to have the economy grow at a pace that does not let inflation get out of control."

Mr. Greenspan's job is arguably more complicated than ever before. In an environment in which technology, financial markets and instant dissemination of information and analysis are combining to reshape the economy in ways that no one fully understands, some analysts think the Fed's ability to smooth out the business cycle may be diminished even if its monetary policy is flawless.

If, as some economists say, the basic problem now is that companies overinvested in new equipment and technology, lower interest rates are not going to do much to get them investing again, at least not quickly.

Under this view, a combination of business overinvestment, high levels of consumer debt, the falling stock market and huge trade deficits leave the nation at risk of a long downturn even if the Fed slashes rates more aggressively than it already has.

Mr. Greenspan has never rejected such a possibility, and has signaled that he is aware of the dangers. But he has generally adopted a more optimistic outlook. And he has said the Fed made the best choices it could over the last few years with the information it had at the time.

"As I look back at that period, I think that the actions we took were right at the appropriate times," Mr. Greenspan told the House Financial Services Committee recently.

Friends and colleagues said he had shown no signs of being bothered by the criticism. His influence in Washington and other world capitals remains immense, and he is as much a presence as ever on the social scene.

His wife, Andrea Mitchell, the NBC News correspondent, threw him a birthday party earlier this month that was attended by Washington's A-list, including Vice President Dick Cheney; Colin Powell, the secretary of state; Paul H. O'Neill, the Treasury secretary; and Katharine Graham of The Washington Post.

"He will shoulder it as he always has, but maybe with 15 more minutes in the bathtub every morning," said William Webster, the former F.B.I. and C.I.A. director, referring to Mr. Greenspan's habit of perusing economic data while he soaks his bad back each morning.

In some ways, his friends and associates say, he seems relieved at no longer being held to unrealistic expectations. He was always uncomfortable, they say, with the notion that he, not advances in technology, drove up the value of so many 401(k) accounts in recent years.

The"maestro," as Bob Woodward called the Fed chairman last year in his book of that name, was rarely shy about using his status to advance his own views or to make the case for his own legacy. But he also seems to have known that the day would almost certainly come when he would fail to live up to his own billing.

After being described at a hearing last year by Senator Phil Gramm of Texas, a Republican, as a"national phenomenon" and an oracle, Mr. Greenspan responded that oracles' insights come"from deep depths of thought which are indescribable, unprovable and rarely correct."

Correct or not, Mr. Greenspan's choices have led economists and investors to raise questions about three specific periods of Fed policy making in recent years.

Did the Fed let economic growth, stock market valuations and consumer debt get out of hand by keeping interest rates too low in 1998 and 1999?

Did the Fed then overreact by tightening too boldly in the first half of last year?

And has the central bank been too timid in cutting rates this year?

Framing the debate are the broader issues of whether Mr. Greenspan has been overly optimistic about the economy's long-term potential and whether he has given sufficient weight to the possibility that the long run of prosperity would turn out to be nothing more than the upside of a boom and bust cycle.

"Those who worried about asset price excesses are critical of him," said Robert J. Barbera, chief economist at Hoenig & Company, an investment firm."Those who are full of supply-side zeal and believed that the Dow could go to 100,000 are giving it to him. And the middle of the roaders are saying that there never was much inflation, so if there's a recession it must be because he made a policy mistake."

The criticism that the Fed tightened the credit reins too much centers on the decision to raise rates last May by half a percentage point, to 6.5 percent, after two smaller increases earlier in the year.

Although the economy was running flat out at the time, the rate increase was labeled by some as overkill that helped stall the economy a few months later. Mr. Greenspan has always said failure to raise rates during a period when demand for investment capital exceeds supply will risk a surge in inflation.

Even so, the Fed was more restrained than in the past. In setting short-term interest rates in recent years, Mr. Greenspan was guided by two basic lines of thinking. The economy, he concluded, was almost certainly capable of higher levels of growth without inflation than in the past because of a sharp gain in the advance of productivity, the basic measure of business efficiency.

At the same time, he came to view the economy as increasingly interlinked with the financial markets.

On the way up, the surge in the value of stocks — and real estate — helped fuel consumer spending, which accounts for two-thirds of the economy. But if the bull market were to turn out to be the product of"irrational exuberance," the phrase Mr. Greenspan famously used in December 1996, when the Dow Jones industrial average stood at 6,300, more than 5,000 points below its peak last year of 11,600, the dangers to the economy would be considerable.

Still, in the years after Mr. Greenspan first raised the subject publicly, his thinking evolved substantially. Ultimately, he ended up with a fatalistic view that the central bank could not identify a stock market bubble ahead of time, and that all it could do was act decisively to clean up the mess should the worst happen.

"To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong," Mr. Greenspan said in 1999."Betting against markets is usually precarious at best."

But by early 2000, Mr. Barbera said, it had to be clear to Mr. Greenspan that the United States had in fact entered bubble territory by anyone's standards. Companies with only flimsy business plans and no earnings were able to raise huge sums of money on Wall Street. Consumers stopped saving. Economic growth hit a pace far higher than what anyone considered sustainable.

That is why the more penetrating criticism of the Fed, some analysts say, revolves around the argument that the Fed may actually have kept interest rates too low in 1998 and 1999. The central bank had good reasons for doing so — first, the global financial crisis and then concerns about a run on banks associated with fears about a potential year 2000 computer bug. Failure to ease monetary policy in those circumstances could have risked financial disaster.

The effect, however, may have been to fuel a runaway credit boom.

"There's been too much in the way of assertions that the Fed precipitated this slowdown through excessively tight monetary policy," said a former senior official at the central bank."It would be more appropriate to criticize the Fed for not being tight enough in the '98-'99 period and thus letting things get up the head of steam they did."

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• ernsthaft beginnen sie jetzt unterm sockel des denkmals zu graben und - Ghandi, 02.04.2001, 19:38
  • Hi! Link geht leider nicht / Paßworteingabe verlangt (owT) - Sascha, 02.04.2001, 20:23
    • ah! members only - w´d you like to be my guest? enjoy ;-) - Ghandi, 02.04.2001, 20:54
      • Greenspan und Savonarola: Prolongation bis zum Sacco die Washington 2019. - El Sheik, 02.04.2001, 22:54