By Anis Haffar [Introduction: About three years ago, I wrote the article, Alan Greenspan: The power behind the U.S. dollar. Little did I know then how appropriate some of the observations would be in times like these vis a vis the global financial turmoil. It will be wrong not to lay the clues from the past before the future. The original article, unedited, ran as follows:] When he talks, every key central banker listens. His magic wand is not a broom, but it sweeps across continents with the flash of lightning. The wand is the interest rate. And the man wielding the magic is Alan Greenspan. Be they the European Central Bank, Bank of England, the Nikkei or any in the world of capital markets, who will not preen themselves or pay top money to know in advance what the United States Federal Reserve Bank (Fed) interest rates might be in the future? The Fed operates directly by buying or selling government securities in order to control reserve pressures, and influence the course of spending and output. The fiercest debates about the cost and availability of money and credit hinge on what the Fed will do. In the eye of the storm is the chairman of the Fed. Next to the president he’s possibly the most important man in the U.S. The Fed itself may rank after the checks and balances trio: The Executive, Legislature, and Judiciary. Mr Greenspan has been likened to one of those powerful people who arrive at important meetings, conferences, and symposia before he gets there in his person. The focus is on him before, during, and after the event. Day in, day out, institutional investors prop their ears and pulses for possible pointers as to where the interest rates may go. The well-being of their stocks in trade and very tenure depend on that. A good many analysts have built entire careers (and estates) in forecasting these puzzling possibilities. But does the chief himself know where the rates may head off? Top-notch economists are notorious for seeing the same facts and numbers and related models and experiences, and still making conflicting but very convincing predictions. Investment indicators are that muddy clear! And that’s how dismal the analyst’s science is! At first, Mr Greenspan was criticized as “too democratic in his leadership approach leading to a periodic policy paralysis, a deepening split between policy hawks and doves.” He led by persuasion than through force, it was said then. His style differed remarkably from his predecessor, the tall and towering Paul Volcker remembered (for the “instinctive sense of policy timing and purpose” and also) for “too much secrecy and personal dominance.” Today, Mr Greenspan too is blamed for being “despotic”. If he was sneered at now, it might be the fault of the position and not of the man. You see, an effective principal has to soothe the tensions between theories and realities, and then weave through the tangle of bold and colourful differences all queued up in the quest for equity and maintenance. The thing to avoid is disaster; and Mr Greenspan has succeeded in that. The Economist attested: “During Mr Greenspan’s 18 years, not only has inflation been low, but the economy has suffered only two mild recessions. In the previous 18 years there were four recessions, including the two severest since the Great Depression.” The weekly then noted: “His greatest achievement was to spot the spurt in productivity growth in the late 1990’s before almost anybody else, allowing the economy to grow faster without fuelling inflation … His replacement by a lesser figure may make markets nervous.” A paper from Princeton corroborated that Mr Greenspan “has a legitimate claim to being the greatest central banker who ever lived”. To draw other meaningful conclusions, it may be useful to see the nature of the job, and how it evolved its chairman. At the outset, the job demanded the duet of hardheadedness and moderation: hardheadedness in that the chief must make hard decisions, and stick to them confidently; the moderation cautions that the chief can tumble admirably down the slippery slope with the confidence in tow. The two are strange bedfellows indeed. It becomes weightier still for the chief (and his board of governors) to figure the appropriate interest rate for the season when the trail is dogged by a gang of volatile and self-centered economic indicators all clamouring for attention. You cannot caress nor recoil from one index without risking the sensitivity of another. It’s like a physician’s cure for a particular ailment that aggravates other diseases in the same patient. To be properly minted, the key to the treasure hunt (the interest rate) is obliged to cater to the whims of this tight family of wild cards. Each indicator is a stubborn ego-system in the overall monetary web. What then are these critical indicators? They are many: prices, wages, market indices, exchange rates, output, etc. But inflation tops the list. It sits unopposed on the volatile heap like a tempestuous king. If inflation is defined as a fall in the value of money, then economic crashes are the calamities to watch against. It is possible to wake up one morning and find that a life savings that could, on a previous day, acquire a luxury house with a pool and a sleek car, can now fetch only a boy’s quarters, and the right to queue for food. (On a small scale, the losses of the Enron employees’ retirement contributions are a case in point in the crash of stocks, and such.) The U.S. experienced such a shock (a massive, national one) in the 1930s: It was called the Great Depression. It started from the era of President Herbert Hoover through President Franklin D. Roosevelt’s unprecedented fourth term that ended with his death. That economic gloom was resolved through the goriest incident: the Second World War. The causes of the economic depression gave capitalism a bad name, and the communists a good reason to entrench their central planning schemes. Capitalism, of course, is not perfect, and economic growth is not an end in itself, except where it serves the greater good. The Fed chairman’s dream is the ideal financial market where capital is allocated to the most productive use. Where money drifts into wastes, there’s always trouble; and that in itself is inflationary. No chairman (no matter how good) can reverse that kind of hemorrhage, or control all economic uncertainties. An advantage of a market economy is that it allows things to evolve through a process of participation, persistence, and free choices. The market (as anyone who had tried a hand at business may testify) is a humbler, realistic way of going about things than following other people’s dictates and promises. And central to the market’s well-being is the Fed’s key responsibility: managing the cost of money. Today the Fed’s decisions affected everyone including the former Soviet satellites now basking freely in the open. Mr Greenspan was sworn in August 11, 1987. He has worked through four U.S. presidents: Ronald Reagan, George Bush Sr, Bill Clinton, and George Bush Jr. When he retires January 31, 2006, he would have served 18 years as chairman. Obviously the hunt for his replacement is on the quiet. But the anointed has to fit the moccasins worn previously by the best and brightest Fed chairmen ever, including William M. Martin Jr, and Marriner Eccles. Mr Martin reigned for a record 19 years as chairman, and he’s remembered as “a master of the art of central banking (with) an instinctive feel for making the right monetary policy move at the right time.” As an inflation fighter, he is said to be “the person who takes away the punch bowl before the party gets too wild.” A story held that in trying to bully him to budge on a particular interest rate decision, President Lyndon Johnson invited him to his Texas ranch and drove him dangerously on dirt roads in a big Lincoln convertible. The chairman did not budge. Perhaps the most intriguing man was Mr Eccles. To begin with, he had no formal education. His genius shone during the Great Depression where he helped President Roosevelt to restore both the economy and confidence in the banking system through the Banking Act of 1935, which empowered the Fed to formulate and implement monetary policy. (Americans pride themselves in having nurtured geniuses: men and women who set up the right structures and systems, so that the average person could excel in them). Mr Eccles is particularly credited for fighting for the Fed’s independence from the Executive branch by excluding both the Secretary of the Treasury and Comptroller of the Currency from the Fed’s board of governors. It must be remembered that the Fed was created by Congress in 1913, and is responsible to the people through Congress. The spirit of the Act was that if money was to be impartially and effectively handled the Fed must be separated from politics. The next Fed chairman will have a lot on the plate. Not only will the new chief have to deal with new throbs of recurring migraines, but also the unexpected turns in this onward global stream. One, Will the new chairman be lucky and possess the peering instinct for predicting the right interest rates? (Milton Friedman, a reputed economist and the author of The Tyranny of the Status Quo, in a television interview years back in the U.S., advised that the business of fixing interest rates should be taken out of the hands of mere mortals, and left exclusively to the computer.) Two, Considering that in the larger economies huge capital investments are held in trust in houses and stocks, how will the new chairman relate to the persistent effects of unforeseen bursts in their prices? Three, How will the Fed handle the growing stature of the Chinese Yuan as the new currency on the block in competition with the dollar? Four, Will the Fed recommend that China continue to support U.S. trade and current account deficits through the purchase of U.S. bonds? Five, For Africa, can Ghana (for example) ever, realistically, participate as a keen player in the financial markets, and benefit from them? It’d be interesting to read Mr Greenspan’s memoirs and his views. The world of finance counted on him during his tenure, and will continue to do so in his retirement. Considering the emerging stature of China on the world economic scene, would he suggest the appointment of a Chinese-American (with tested and empathic cross-cultural sensitivities) as the new chairman of the Fed? Mr Greenspan’s new role has just begun. [The writer is the founder of Gate Institute for continuous teacher education in English Language skills, and Student-centred teaching for primary, secondary, and tertiary levels. He has just completed seminars at the British Council, Accra, on the topics: 1. Power Writing for Power Thinking; 2. Teaching Poetry; and 3. Leadership Centred Teaching. Email: gateinstitute@yahoo.com.]