Atelier No. 15, article 14
 

Ellen Frank :
Dollars and Sense, April 2000)

                                                           Saint Greenspan?

                   So extravagantly has the media been lauding Alan Greenspan, one would
                   almost think he had been nominated for sainthood rather than a fourth term as
                   chair of the Federal Reserve. To hear the business press tell it, Saint
                   Greenspan has single-handedly engineered both the U.S. economic boom
                   and the soaring U.S. stock market.

                   Yet not only is Greenspan not responsible for recent U.S. prosperity, but
                   much of what is wrong in the world economy today can be traced to his
                   door. Under his leadership, the Fed (which controls the key interest rate that
                   banks pay to obtain funds) has placed the vested interests of banks and
                   bondholders above the interests of workers or even the stability of the
                   economy. Since Greenspan became chair in 1987, the Fed has repeatedly
                   indicated that its first and foremost goal is to raise interest rates as high as
                   possible, whenever possible, so long as bank profits aren't endangered.

                   Unlike his predecessor Paul Volcker, Greenspan has not yet toppled the
                   economy in order to safeguard the wealth of the financial elite, but he has
                   certainly come close. Since his premature reappointment, media
                   retrospectives have cited Greenspan for wisely cutting interest rates during
                   the recession of 1991. They fail to note, though, that it was tight money and
                   high rates that had done the economy in. Former president Bush still blames
                   Greenspan for the recession that scuttled his reelection bid.

                   The recession in 1991 set off waves of bank failures, which forced the Fed to
                   cut interest rates in 1992 and 1993. No sooner had the large banks
                   recovered, though, than the Fed raised interest rates once more, doubling
                   short-term rates over the course of 1994. Soon real (inflation-adjusted)
                   interest rates reached historic highs. Higher mortgage and debt service
                   payments sent national income flowing to the finance sector by mid-decade,
                   New York had the most unequal income distribution of all the 50 states and
                   set the stage for nearly four years of declining wages and stagnant family
                   incomes.

                   How quickly we seem to have forgotten that it was Greenspan who, during
                   much of the 1990s, insisted that an unemployment rate of 6% was "natural,"
                   Greenspan who threatened to hike interest rates each time an unemployed
                   worker got a job. On Greenspan's watch, the Fed has not only willfully
                   ignored its legal mandate to promote full employment, it has even quietly
                   pushed legislation that would eliminate altogether its statutory obligation to
                   workers.

                   Greenspan's craven lobbying on behalf of financial markets, and his stubborn
                   refusal to accomodate wage growth, have emboldened conservatives at the
                   Fed. Fed policy discussions today revolve not around whether to raise rates,
                   but when and by how much. Further increases in interest rates are presented
                   as so inevitable, that the Fed no longer even bothers trying to justify them.
                   When he raised interest rates in 1994, Greenspan was fond of blaming the
                   high rates on Clinton and the federal budget deficit. But when Clinton
                   declared this past year that the largest surplus in history would surely cause
                   interest rates to fall, Greenspan's Fed announced the first of four interest rate
                   increases.

                   Greenspan's inattention to anything beyond the parochial needs of financiers
                   has caused harm throughout the world. Greenspan was a forceful advocate of
                   financial deregulation and "liberalization" of international monetary policies
                   that so damaged the indebted countries of the third world. The discredited
                   policies endorsed by Greenspan and pushed by the IMF fueled the
                   destructive financial speculation that shook world markets just two years ago.
                   While Greenspan is praised for cutting rates in 1998 to avert a financial
                   meltdown in the US, he lost no time in pushing them back up again this past
                   year. These high interest rates have greatly exacerbated the problems of
                   indebted countries, whose interest costs vary directly with short-term U.S.
                   interest rates. Thanks in no small part to Greenspan, most of the emerging
                   markets are still reeling under crushing debt burdens and punishing interest
                   rates.

                   Since Greenspan's reappointment, the Fed announced a further interest rate
                   increase and is widely expected to raise rates aggressively in 2000, a boon to
                   Wall Street, but a bust to virtually everyone else. We'd better start praying
                   that Saint Greenspan doesn't derail the economy.