Greenspan, a Republican
On June 2, 1987, President Reagan nominated Greenspan as a successor to Paul Volcker as chairman of the Board of Governors of the Federal Reserve, and the Senate confirmed him on
August 11, 1987.
After the nomination, bond markets experienced their biggest one-day drop in 5 years.
Just two months after his confirmation he was faced with his first crisis — the 1987 stock market crash.
Noted investor, author and commentator Jim Rogers has claimed that Greenspan lobbied to get this chairmanship.
His terse statement that the Fed “affirmed today its readiness to serve as a source of liquidity to support the economic and financial system”is seen by many as having been effective in helping to control the damage from that crash.
His handling of monetary policy in the run-up to the 1991 recession was criticized from the right as being excessively tight, and costing George H. W. Bush re-election.
The incoming Democratic president Bill Clinton reappointed Greenspan, and kept him as a core member of his economic team. Greenspan, while still fundamentally monetarist in orientation, argued that doctrinaire application of theory was insufficiently flexible for central banks to meet emerging situations.
Another famous example of the effect of his closely parsed comments was his December 5, 1996 remark about “irrational exuberance and unduly escalating stock prices” that led Japanese stocks to fall 3.2%.
During the Asian financial crisis of 1997—1998, the Federal Reserve flooded the world with dollars, and organized a bailout of Long-Term Capital Management.
Some have argued that 1997-1998 represented a monetary policy bind — as the early 1970s had represented a fiscal policy bind — and that while asset inflation had crept into the United States, demanding that the Fed tighten, the Federal Reserve needed to ease liquidity in response to the capital flight from Asia. Greenspan himself noted this when he stated that the American stock market showed signs of irrationally high valuations.
In 2000, Greenspan raised interest rates several times; these actions were believed by many to have caused the bursting of the dot-com bubble. However, according to the Economist Paul Krugman” he didn’t raise interest rates to curb the market’s enthusiasm; he didn’t even seek to impose margin requirementson stock market investors. Instead, he waited until the bubble burst, as it did in 2000, then tried to clean up the mess afterward.”
In autumn of 2001, as a decisive reaction to September 11 attacks and the various corporate scandals which undermined the economy, the Greenspan-led Federal Reserve initiated a series of interest cuts that brought down the Federal Funds rate to 1% in 2004.
His critics, notably Steve Forbes, attributed the rapid rise in commodity prices and gold to Greenspan’s loose monetary policy which is causing excessive asset inflation and a weak dollar.
By late 2004 the price of gold was higher than its 12-year moving average.
On May 18, 2004, Greenspan was nominated by President George W. Bush to serve for an unprecedented fifth term as chairman of the Federal Reserve. He was previously appointed to the post by Presidents Ronald Reagan, George H. W. Bush and Bill Clinton.
Greenspan’s term as a member of the Board ended on January 31, 2006, and Ben Bernanke was confirmed as his successor.
Greenspan is blamed by the followers of the Austrian School for creating excessive liquidity which caused lending standards to deteriorate resulting in the housing bubble of 2004-2006 and the market meltdown beginning in 2008.
Currently the American Federal Reserve follows a modified form of monetarism, where broader ranges of intervention are possible in light of temporary instabilities in market dynamics.
http://en.wikipedia.org/wiki/Alan_Greenspan
