Alan Greenspan Hero Or Villian

ALAN GREENSPAN

HERO OR VILLIAN?

JENIFER SCHONE

MACROECONOMICS

To properly discuss Alan Greenspan, we need background information, where he worked and what exactly did/does he do.

Alan Greenspan (born March 6, 1926) is an American Economist and was

Chairman of the Board of Governors of the Federal Reserve of the United States from

1987 to 2006.

Mr. Greenspan was appointed Federal Reserve (FED) chairman by President Ronald

Reagan in 1987 and was reappointed at successive four-year intervals until retiring in

January 2006.

Many people agree that Mr. Greenspan was an excellent economist, that I agree,

however, I feel that he started believing his own “press” and consequently his actions put

Americans in the deficit we are currently in. I will explain even further that Mr.

Greenspan’s own agenda is what drove him, not the best interest of the United States of America.

My goal in this paper is to expose Mr. Greenspan not as a hero of the people, but a

eccentric businessman, whom in the end, was only looking out for himself and big business.

Let’s first start by defining what the “FED” is. The Federal Reserve was created by U.S. Congress in 1913. The FED is headed by a government agency in Washington known as the Board of Governors of the Federal Reserve. The Board of Governors consists of seven Presidential appointees, each of whom serves 14-year terms. All members must be confirmed by the Senate and can be reappointed. The board is led by a chairman and a vice chairman, each appointed by the President and approved by the Senate for four-year terms.

There are 12 regional Federal Reserve Banks located in major cities around the country that operate under the supervision of the Board of Governors. Reserve banks act as the operating arm of the central bank and do most of the work of the FED. The banks generate their own income from four main sources:

1. Services provided to banks

2. Interest earned on government securities acquired while carrying out the work of the Federal Reserve

3. Income from foreign currency held

4. Interest on loans to depository institutions

The income gathered from these activities is used to finance day-to-day operations, including information gathering and economic research.

The FED also includes the Federal Open Market Committee, FMOC. This is the policy making branch of the Federal Reserve. Traditionally, the chair of the board is also selected as the chair of the FMOC. The voting members of the FMOC are the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and presidents of four other Reserve Banks who serve on a one-year rotating basis. Most importantly, the FMOC makes the important decisions on interest rates and other monetary policies.

Since we have background information on Mr. Greenspan and have a familiarity to where he worked, the FED, lets see the major issues that Mr. Greenspan has dealt with.

Mr. Greenspan’s first major experience at the FED was the stock market crash of 1987; know as “Black Tuesday”. Here Mr. Greenspan, not the President of the United States, stood up and said, “the FED stands ready to provide all necessary liquidity to support and recover from this downfall”. Simply put, Mr. Greenspan was able to help the stock market rebound and for this he should be thanked.

However it is my intention to focus on the current state of our economy that has the American citizens in the situation we are in. I believe this can be broken down in 3 major areas;

1. Inflation

2. Interest Rates

3. Housing Market

First, lets look at Inflation. What is inflation? Inflation is the overall upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index.

Mr. Greenspan is commonly known as an inflation hawk, often criticized for controlling inflation rather than on lowering unemployment rates. Mr. Greenspan will have you believe that if you keep inflation down or even, that it is a good thing for the economy, well, that is an obvious statement. However, there are times, such as the past 5 years that a small amount of inflation would have stabilized the economy and have a more even keel approach, rather than the rampant market swings, yo-yo interest rates and high unemployment rates we see today.

Second, lets look at Interest Rates. What are Interest Rates? Interest rates are the yearly price charged by a lender to a borrower in order for the borrower to obtain a loan. This is usually expressed as a percentage of the total amount loaned.

This