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Of What Has been and What Might Be

T.C.A. Srinivasa Raghavan

By Alan Greenspan
Allen Lane an Imprint of Penguin Books, 2008, pp. 531, Rs. 695.00


Half of this book tells the story of the heady years between 1987 and 2006 when Alan Greenspan was the Chairman of America’s Federal Reserve Board, known to the whole world as simply the Fed. The other half consists of musings about the future and is actually quite disappointing. For almost 20 years, Alan Greenspan ran the world. The importance of the role the Fed plays is not known very widely. It controls, albeit indirectly, the money supply of the world and is in many ways the guardian of the world’s financial stability. Indeed, in that sense, he is almost as important as the American president (almost and not fully because the president controls the appointment of the Chairman). Greenspan’s long term also saw the world undergo one of the longest booms it has ever seen, which is now ending.   Greenspan also oversaw a process that brought back monetary policy back to the centre-stage as the chief instrument of economic policy. The previous decades had belonged to fiscal policy and although Greenspan was not in charge when monetary policy began to reassert itself, he was the one who gave it full play. The economic literature of the Greenspan era—and era is what it was—is different mainly in that it can never ignore the Fed and US monetary policy. Many would even argue that by the time he left in 2006, it had come to occupy centre-stage.   There was a reason for the resurgence of monetary policy, of course. By the time the 1980s ended, there were far too many dollars in existence to be ignored. Their presence had forced governments to liberalize the financial markets in the 1980s because with such liberalization, the dollars that belonged to the rich would not be able to earn high returns. By the time Greenspan took over, America’s financial sector, housed in New York’s Wall Street had begun to play the dominant role in America’s economy. It had also become wild and contained some real sharpsters who earned in hundreds of millions annually. In short, it had become the engine room of the American, and therefore the world, economy.   In that sense, even if Greenspan had wanted, he could neither have tamed it nor ignored it. He had only one option before him: to allow it even fuller latitude. The problem however was also of being able to control it ...

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