U.S.: "Time for Greenspan to Step Aside" (NY Post)

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Headline: IT'S TIME FOR ALAN GREENSPAN TO STEP ASIDE

Source: John Crudele, New York Post, 21 August 2001

URL: http://www.nypost.com/business/2452.htm

It’s too bad Alan Greenspan can't be fired.

The Federal Reserve will meet today and the guessing is that it will cut interest rates for the seventh time this year. There have been so many rate cuts that the financial markets no longer care.

About 16 months ago I wrote a column advising Fed Chairman Greenspan to quit while he was ahead. That was before the popping of the dot-con bubble and prior to the U.S. economy suddenly veering into a pit.

Now I'd like to again urge the 75-year-old Fed chairman to quit - but this time so the country can get some monetary leadership that is trusted by both the bonus-hounds on Wall Street as well as by people who actually work for a living.

Alan, resign for the good of the country!

What did Greenspan do that was so wrong? Just about everything. And while historians will probably pick up on his missteps, the media have generally been pretty unquestioning and kind.

Here's a snapshot of today's economy: The nation is in a recession, even though none has been officially declared and probably won't be for months. And we're pulling down the rest of the global economy.

And, despite the rosier-than-real picture coming out of Washington, companies are cutting back like the end of the world is near. Greenspan started reducing borrowing costs in January.

But he succeeded only in bringing down the short-term interest rates - the kind that hurt people who put their money into banks, money market funds and certificates of deposits.

That has cost savers billions in spending money and has cooled the economy.

It was only a couple of weeks ago that long-term rates finally started to decline. These long-term rates are what matters to companies that might want to borrow.

Not that companies are in much of a mood to take on loans nowadays.

According to First Call, which monitors company earnings, profits are now expected to decline 12.6 percent in the third quarter from last year.

As recently as April, they were expecting a rise of 1.6 percent.

Second-quarter earnings were down 17.2 percent. That's only slightly better than the 18 percent drop they had been expecting right before the official numbers started to be released.

Interest-rate cuts are meant to spur companies to borrow money and spend. With corporate profits that bad, companies just won't play along - not with seven rate cuts, not with 10.

"Every chief executive I speak with is running scared. It's a collective anxiety attack," says a source of mine.

But Greenspan's failures go beyond not getting interest rates to behave the way he wanted. He is the one guy who could have kept America from getting itself into this bad economic situation in the first place.

Everyone agrees now that our current problems began with the over speculation in the 1990s.

Dot-cons, the Ponzi schemes of the '90s, cost investors billions of dollars. But companies also lost billions on horrible Internet businesses. And that's money they can't spend today.

Greenspan wasn't stupid; just timid. He saw what was happening. He even warned numerous times about the dangers of "asset inflation," which is Fed-speak for the stock market bubble. He didn't start raising interest rates until 1999, when greed was already rampant. The Fed is supposed to take away the punch bowl from drunken investors. Greenspan thought waving a stern finger at them was good enough.

There was one more unfortunate incident on Greenspan's watch - the impeachment of President Clinton.

Even as the Fed was trying to talk some sense into Wall Street, Greenspan was undoubtedly very concerned about keeping stock prices up.

All in all, not a very good report card for Mr. Greenspan. At 75, it's time to give someone else a chance.



-- Andre Weltman (aweltman@state.pa.us), August 21, 2001


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