Alan Greenspan


Finweek English Edition - - INSIGHT: INTERNATIONAL -

“Well the ques­tion is do you quash the bub­bles? The an­swer’s yes, you can quash them, but not in a demo­cratic so­ci­ety. I mean, I hes­i­tate to think what would have hap­pened if the Fed­eral Re­serve had tried to quash the dot-com boom – as­sum­ing we knew ex­actly what it was all about, which we didn’t, un­til later. All hell would have bro­ken loose.

“The Fed­eral Re­serve’s in­de­pen­dence would have been se­verely con­strained, be­lieve me. We were in­de­pen­dent in a sense that no other agency of gov­ern­ment can coun­ter­mand the ac­tions of the Fed­eral Open Mar­ket Com­mit­tee. But they can change the law.

“All sorts of threats were al­ways there. One, for ex­am­ple, is to take the vot­ing power away from the (Fed­eral Re­serve Bank) pres­i­dents, who sta­tis­ti­cally are demon­stra­bly more hawk­ish than the po­lit­i­cally ap­pointed gover­nors. All sorts of things like that could oc­cur.

“I’m sur­prised the Fed’s in­de­pen­dence wasn’t more sig­nif­i­cantly cur­tailed in this post-cri­sis era. It was cur­tailed slightly. The na­ture of the boards of the in­di­vid­ual 12 re­serve banks was al­tered, but not enough to fun­da­men­tally af­fect pol­icy as far I’m con­cerned.

“If the Fed­eral Re­serve unan­i­mously con­cluded that there was a ma­jor bub­ble un­der­foot and if we don’t stop it now within five years it would do in the coun­try, the Fed­eral Re­serve could not move. It would be mov­ing in a way which would cre­ate a coun­ter­vail­ing po­lit­i­cal force. And we were aware of it. We never as­sumed that we were po­lit­i­cally in­de­pen­dent in the true sense of the word.

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