With inflation pressures mounting and the economy growing (at least theoretically), there are a lot of calls for Alan Greenspan and the Federal Reserve to raise the Federal Funds interest rates. Economists have charts and graphs that seem to show interest rates are too low. Other interest rates (on treasury bonds, for instance) have risen significantly, anticipating the rise in the Fed Funds rate. Everyone seems to think that Alan Greenspan is behind the curve.He's not.
The history of the Fed Funds rate under Alan Greenspan show one thing -- he likes George Bush. Anyone named George Bush.
In 1992 America was already pulling out of a recession. The economy was recovering all by itself. Yet Alan Greenspan lowered the Fed Funds interest rate several times that year. One year before the election, the Fed Funds rate was five percent. On election day, after lowering the rate six times, it was three percent.
It didn't help. Bill Clinton defeated George Bush.
In 1993, Alan Greenspan threatened to raise interest rates if President Clinton didn't raise taxes and cut the deficit. Then in 1994, when the Republicans geared up to try to take over Congress, Greenspan raised the Fed Funds interest rate five times before election day, and the Republicans got what they wanted.
During the elections of 1996 and 1998, nobody named Bush was running for national office. After January 1996 there was no change in the Fed Funds rate for the rest of the year. In 1998, the rate was actually lowered twice before the election.
Fast forward to 2000. America is entering a recession, so you would expect interest rates to go down. No such luck. First, Alan Greenspan goes before Congress and advocates a tax cut -- one which turned record surpluses into record deficits. Not satisfied with publicly supporting reckless tax cuts, he sends the Fed Funds rate up three times in 2000, and George W. Bush becomes President.
Then, even before Bush took the oath of office in 2001, the rate was lowered. It was lowered ten more times in one year, six times before the attacks on September 11.
Alan Greenspan is not behind the curve. He's doing everything he can to get his guy elected to a second term. He has always done everything he could to get his guy George Bush elected.
The Federal Reserve Bank is supposed to be independent. Naturally, the actual members of the Board of Governors are going to have their personal preferences, and those preferences are going to color their judgments to some extent. But Alan Greenspan has consistently put his personal preferences above national needs. His support for George Bushes has put America's economy at risk.
It's time for Alan Greenspan to go.
Copyright 2004, Dan Jacoby
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