by John M. Curtis
(310) 204-8700

Copyright February 19, 2003
All Rights Reserved.

nce dubbed as the "Maestro" by Washington Post's Watergate-famed writer Bob Woodward, Federal Reserve Chairman Alan Greenspan now limps to Capitol Hill, a dejected relic of the go-go '90s, when deficit frogs turned into surplus princes. Facing congress today, Greenspan is a shell of the man that Time Magazine once called the leader of "The Committee to Save the Free World," earning him honorary knighthood from Queen Elizabeth. Testifying before the Senate Banking and House Financial Services Committees, Greenspan had little good to say about President Bush's new stimulus plan calling for $670 billion in additional tax cuts with deficits engulfing the federal budget. "The president simply has a different view on the importance of helping those who are out of work," said a White House spokeswoman, taking a shot at the man once credited with the longest economic expansion U.S. history.

      Turning 77 in March and getting closer to retirement, Greenspan is largely blamed for derailing the most prolific stock market on record. From 1997 through March 2000, the DOW jumped 65% or 18% per year, while the tech-rich Nasdaq rocketed 350% or 85% per year, generating unprecedented income tax and capital gains revenue, turning ballooning deficits into whopping surpluses. Witnessing share prices inflate in 1998, Greenspan accused the market of "irrational exuberance," prompting a sharp sell off. Markets quickly recovered continuing their upward march until crashing in March 2000, after a relentless series of rate hikes in 1999. Greenspan insisted then that he was managing inflation, not targeting the stock market. We now know this was false. He recently admitted that other Fed governors wanted to hike rates in 1998 to contain an ominous stock market bubble—deliberately targeting Wall Street.

      With deficits ballooning and markets depressed, Greenspan no longer enjoys the same credibility, frequently citing "geopolitical" uncertainty—namely, a possible war with Iraq—as hobbling Wall Street. Yet, at the same time, Greenspan both praises Bush's plan to eliminate the double taxation on tax dividends and criticizes growing deficits now affecting economic progress. Bush's new Treasury Secretary John Snow wholeheartedly endorses "supply-side" economics, urging tax cuts to stimulate growth. "That was a mistake," said Allan Meltzer, a Carnegie Mellon University economist and author of a respected book on the history of the Federal Reserve Board, believing the Fed chairman should keep his nose out of fiscal policy. "He acted as if the two were completely disconnected," said liberal Congressman Barney Frank (D-Mass.), mirroring concerns about mushrooming deficits on both sides of the aisle.

      Greenspan has never acknowledged that his clumsy handling of monetary policy in 1999 torpedoed the best stock market and economic climate in U.S. history. Fed policy makers knew then the nation's economic vitality was dependent on the expanding tax revenues linked directly to capital gains and income tax growth from the bull market. Nine consecutive tax hikes was enough to short circuit the DOW and decimate the tech-heavy Nasdaq, whose industries were more dependent on selling stock. Without copious market capitalization, Greenspan knew otherwise promising tech companies would go belly up. Bankruptcies skyrocketed after the market meltdown in 2000, causing a massive exodus from stock mutual funds and continuing today's erosion in share prices. While everyone's looking for a bottom, investors seek safe havens to protect what"s left of life-savings.

      Targeting the stock market, Greenspan showed callous disregard for new investors placing hard-earned cash into the market for long-term investments. With Greenspan's erratic monetary policy, he reminded investors that the stock market was far too risky long-term security. Without runaway inflation, Greenspan still fingered the stock market, hiking rates and bringing down share prices to pedestrian levels. What he didn't foresee in 1999 was that the U.S. treasury—and corporate survival—grew hopelessly dependent on capital gains and income tax revenue from a robust stock market. With the market in the tank, it's unlikely that the treasury will get unexpected windfalls anytime soon—projecting deficits into the foreseeable future. Greenspan must take responsibility for derailing the bull market, choking off the spigot that kept corporations solvent and the government in the black.

      Greenspan's colossal miscalculation cost investors and U.S. corporations more than $9 trillion. With inflation in check, he deliberately targeted the stock market by recklessly hiking interest rates in 1999. When the market crashed in March 2000, Greenspan waited far too long before regaining his senses and lowering rates. By the time he responded, the tech industry was already on life-support, refractory to usual resuscitation. Today, Greenspan stands as living proof that the economy passed him by, admitting he doesn't know what to do next. "If you look at Alan Greenspan, there's no doubt that he's in the twilight of his career," said Fred Kettl, author of a book a Fed leadership, realizing that his term ends in June 2004. No single person or event—including Sept. 11—has caused more harm to the U.S. economy than Alan Greenspan. Before it's too late, the Fed chairman should put in his request for early retirement.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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