Why We Chose Him
Because Greenspan's Fed stared a drowning stock market straight in the eye and tossed it a rate cut he knew wouldn't be quite buoyant enough to keep it afloat. (The market obliged by sucking water for two straight days.) And because the central banker with America's highest Q rating thus entered into a game of economic-policy chicken with the decade's other breakout star: Wall Street. And, finally, because he has set in motion a series of moves that will shape the economic destiny of all of us.
The stakes are almost total. Never before, Wall Street yelps, have the market's fortunes been so entwined with Main Street's. Never before has the portfolio had so much hold over the wallet, and never before has so much broad-based American wealth been created and destroyed in so abrupt a lurch. The Wall Street contention is simple: These are again troubled global times, and the I-feel-rich American consumers who supported the U.S. economy through the Asian, Russian and hedge-fund tremors are on the brink of feeling very poor, and are acting accordingly.
No evidence of the Apocalypse yet
The economic reports with which Greenspan stuffs his briefcase on FOMC Tuesdays continue to indicate an economy whose bottom-scraping is behind it. Unemployment is still near record lows, and still inching downward; home sales and mortgage refinancing (Americans' other source of net worth) are brisk. Consumer confidence and retail sales — the shopping factor that will sustain this economy or starve it — seem to have come to the brink and pulled up short.
Wall Street, chilled by the prospect of several seasons of wintry revenue forecasts, despondent over foundering stock indexes, and possibly projecting its depression onto the American consumer, sees another closing of wallets coming. The professionals, sniffing an apocalypse, are crying out for rescue by the man they are most accustomed to seeing in shining armor: Greenspan. We need 75, 100, 150 basis points, they moan, or the bears shall surely eat us all.
And Greenspan thinks they ought to make do with what he gave them — a third straight 50-point cut, the most he's ever provided in so short a time. With the economy admittedly teetering but not yet falling on its face, Greenspan has made it clear that he thinks a firm but gradualist easing is enough until the Main Street news gets worse.
Woe at home, rue abroad
And Greenspan is managing all this while battling the rest of the world in what is shaping up as a Japan-led rematch of 1997. With Asian and European investors still holding more faith in Greenspan and his U.S. track record than in their own economic leaders and prospects, the dollar has stayed strong amid all the rate-cutting, making U.S. manufacturers' lives even more miserable than normal. As Japan tries to export its way out of deflation, bank insolvency and crushing consumer gloom without setting off the competitive-devaluation dominoes in Asia, Wall Street — apparently more than Greenspan — fears the U.S. is in no shape to play life raft this time around.
Then there are the woes at home. Summer promises power failures in the world's sixth-largest economy, California. And at a time when U.S. consumers will be taking a hard look at their vacation budgets, OPEC is cutting oil production in anticipation of a worldwide demand slump. In a cruel twist of irony, the U.S. could find any attempted summer comeback choked off by high prices at the pump.
The markets are crying out for leadership, and with Tuesday's cut Greenspan stated with some plainness that he will not be providing any. There is high-minded talk of the "moral hazard" — certainly the Fed cannot come to the rescue every time the investing mob makes a bad group bet — and lower talk about A Man and His Ego. Perhaps he is prodding George W. Bush to put his tax cut where his mouth is when it comes to stimulating the "sputtering" economy the President talks so much about.
For Alan, the glass is half-full
Whatever Greenspan's private rationale — we'll get the minutes eventually — a course of sorts has been set: Until the Fed sees a tangible sign that the U.S. consumer is turning sullen, the Fed will stick to gradualism and the markets are on their own.
If Greenspan turns out to be right, by summer U.S. businesses will be able to imagine healthy growth again, the markets will embark on a slow and steady bull run, and sometime in early 2002 Greenspan will be acknowleged, with fresh awe, to have Done It Again.
The problem is if the bad consumer news does come, it may already be too late. Shell-shocked consumers can stay inside for years — just ask Japan — and without American shoppers the recession will arrive. And if it does, it will probably come at the vortex of a very nasty global storm.
Greenspan's critics, who drew blood for the first time in years after the Fed's last interest-rate hike had dramatic consequences (Greenspan denies being wrong about fighting phantom inflation while tech stocks crashed to earth all around him), will never let him live it down. And when the Greenspan-adoration bubble bursts, it'll make bigger global economic news than the NASDAQ's did.
Are things leveling off?
As the week trailed off, the markets were in an intriguing sort of convulsion, with the industrials on Thursday plummeting nearly 400 points into bear territory and a two-year low before careening back up to near-even at the close. (Both New York tabloids blared the same headline today: "Mad Dow Disease.") Friday morning the indexes were sunny — had the markets finally learned to swim with what Greenspan had already given them?
Even Washington was edging into the breach. Thursday, Republicans in the Senate were moving toward a bipartisan-endorsed $60 billion tax cut for 2001 as an addition to the still back-loaded Bush plan, and House leaders, elbow-deep in the budget, quickly signaled they were willing to follow suit.
Greenspan has ridden the twisting, turning, 10-year economic boom to a level of public consciousness that is surely as historic as the boom-and-burst itself. The Fed chairman was the subject of two biographies in 2000, "Maestro" and "The Man Behind Money," and regularly fields questions about whether he's more powerful than the President (especially this president). After riding TIME's cover as one of "The Committee to Save the World" in the wake of the Asian crisis in 1998; Greenspan may well now be angling to score Man of the Year.
Hero or villain? Who knows?
It could happen. The economy should have delivered its verdict on the Wall Street–Main Street question by sometime this summer — any sooner, and the news probably won't be good — and eventually we'll all know whether the New Economy can really pull out of a skid with new agility or whether the "reverse wealth effect" has left it on its side in a ditch with two wheels spinning in the air. In either case, the Year We Cleaned Up the Bubble will have Alan Greenspan's fingerprints all over it.
It could be the story of a cooler head prevailing. It could be a story of criminal neglect. Either way, when recap time comes around this week may prove the decisive chapter.