GACreenspen’s Era

Nino Arveladze

This master and wizard of the world banking system, if he sneezed in Washington they used to say “bless you” in Tokyo, the man who has been reigning in the world financial ocean for 18 years. Who was he, and why Greenspen was Greenspen?

Alan Greenspen , the man who was in charge of the Federal Reserve for 19 years. He was the initiator of all changes the implementation of which was possible in the economy. Let us take a look at his activities in the US Central Bank.
By the President Reagan’s decision he substituted for Paul Walker, and a few months later he faced his first exam. In October 1987 there emerged problems on the shares market against the background of the economic crisis. The federals opted for lowering of the rate with the purpose of settling of the problems. By doing so they also managed to avoid a sharp downfall of dollar. This mission greatly helped Alan Greenspen to gain a foothold in Wall Street.
In summer 1988 the federals started to raise the rate with the purpose of controlling inflation. In spite of this step, the prices were growing and by 1989 the economic growth indicator looked incoherent. The war in the Gulf that broke out in August 1990 complicated the situation for the balance – energy resources rose in price. The Federal Reserve’s policy justified itself and the inflation indicator decreased, now the Central Bank already could to lower the rate; in the second half of 1991 the rates were sharply lowered – from 6% to 4%.
Lowering of the rates had been continuing till October 1992, the tariff of the Federal Reserve’s fund made up 3% and remained unchanged for 16 months. Inflation retreats again and in 1992 its indicator made up 3%. The unemployment rate decreases as well thanks to loans monetary policy. In February 1994 the federals again face the threat of growing prices and inflation. They resort to raising of the rates again. The interest on loans is increased from 3% to 6%, while the inflation is decreasing against the background of economic growth and lowering of the unemployment level.
This step of the Federal Reserve caused another change – not sparing themselves they try to have a more distinct style and mention the task of the fund’s tariff after each meeting. The change implied that once secret procedures of the Central Bank ought to become more understandable for the market and the society.
The federals kept the lock and the key of the inflation, there was a time of yet another prolonged technological boom. Economists hoped that technology improvement will help the production in which there had been problems since 1970. The success was not long in coming and in 1996-2000 the production level was increasing by 2.4% on average. The wages are increasing as well, the incentive is given to the demand, the incomes and share cost of companies are increasing. “The production miracle” consolidated the opinion that inflation was strictly controlled. However, there was a dark side of this breath-taking success, Greenspen called it “irrational abundance”. The federals confronted the option: continuation of the monetary policy or lowering or tariffs, which could cause a recession. In 1996-1999 the Federal Reserve’s representatives thought about the tariffs a little at least, in 2000 the funds tariff was 6.5%. Economic growth was continuing and the federals had solid positions.
In 2001 the economic growth is slowing down. It became clear that many businesses worked too much and increased their capabilities. Consumers became more farsighted and showed moderateness in expenses. The attack of September 11, 2001 had a great negative effect on the economy, consumer confidence was shaken, 800 000 jobs were closed down in October-November. In December the federals lowered the rate to 1.75%. The policy makers reduced the fund’s tariff to 1%. In 2002-2003 the economy’s improvement was observed, but critics say that reduction of the tariffs substituted one security for other ones – housing securities. In 2004 the Federal Reserve starts raising of the tariffs, but the rates of the long-term loans were not raised, which threw economists into confusion.
Ben Bernanke holds Greenspen’s post. There are few signs that the Federal Reserve will change its political course. According to forecasts and market experts, the federals will continue to raise the rates, at the beginning of the year the tariff of the Federal Reserve’s fund will be equal to 4.25%, while in June – 4.5%. The policy makers made it clear that their main problem was the growth of inflation and not a short-term slowing down of the economy.