Alan Greenspan Alan Greenspan, the chairman of the Federal Reserve, has always fascinated the financial community. Whatever he says can make or break the markets. He is a highly educated economist with many years of experience. People seek for his advice and obey his judgments. His proclamations are repeated and expounded upon.
Greenspan: The Man Behind Money In Justin Martin's book Greenspan: The Man Behind Money, the life of Dr. Alan Greenspan, a man whose expertise in economics has dramatically influenced the state of the U.S. economy, is told from a historical perspective and in a semi-chronological order. Alan Greenspan grew up in New York City's Manhattan. After his parents divorced he went to live with his mother and her parents. Greenspan's father rarely visited, yet when he did, Greenspan was extremely happy. This detail struck an emotional cord in that it was evident Greenspan strived to succeed not only for himself but also for the approval of his father.
Economist Raghuram Rajan was one of the prophetic ones at the central bankers conference where Alan Greenspan was present in 2005 and delivered his paper asking, “Has Financial Development Made the World Risker?” The answer to this question in Rajan’s head was yes, but all other critics it was no, however more recent events; that of the 2008 crisis has proved him correct.
Today in the United States, we have security in the banking system. People trust that banks wont fail, and their savings will be gone with it. While some people today do not completely trust in the banking system, the situation pales in comparison to the reality that people faced in the late 19th and early 20th centuries. In this time bank failures, economic panics, and slow economic downturns were as common as the seasons. Over time, American society has come to have faith in a Central Bank, known as the Federal Reserve System. The Federal Reserve System has many responsibilities, including, but not limited to, promoting economic growth, setting monetary policy, regulating and overseeing financial institutions, and issuing currency. All of these responsibilities have been very important for maintaining a strong economy, but the history of Central Banking in the United States shows that in the past it was not always a welcome entity.
Alan Greenspan took office June 19, 2004, for a fifth term as Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. He originally took office as Chairman and to fill an unexpired term as a member of the Board on August 11, 1987. Dr. Greenspan was reappointed to the Board to a full 14-year term, which began February 1, 1992, and ends January 31, 2006. He has been designated Chairman by Presidents Reagan, Bush, Clinton, and Bush.
One of the most common monetary policy strategies employed by countries wishing to achieve price stability is inflation targeting, which involves five different elements. Despite the commonality of its usage, inflation targeting has numerous disadvantages as cited by critics (Mishkin & Eakins, 2012).
Batra, Ravi. Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy. New York, NY: Palgrave Macmillan, 2005.
In 1999, the ECB was a new bank with no decision-making history and that made it difficult to pass out the monetary policy strategy to the market and the public, and that was a real challenge for ECB. By now, the understanding of ECBâ€™s monetary strategy has greatly improved. â€œThe ECB today ranks as one of the most open, transparent and predictable central banks in the world, and they continually seek to improve their communicationâ€? (ECB, 2004)
He clearly showed that the monetary policy becomes futile when the exchange rate is fixed. The central bank must intervene on the currency market in order to satisfy the public's demand for foreign currency under a fixed exchange rate. As a result, the central bank loses control of the money supply, which then passively adjusts to the demand for money (domestic liquidity); neither interest rate nor exchange rate can be affected. The central bank cannot print too much of money because it will cause the inflation happen in the country. However, government may increase the government expenditures or cut the taxes to raise national income an...
The Money Growth Rule is based upon a theory originally set forth by Milton Friedman as a solution to keep the United States economy on a controlled course of growth. The thoery revolves around the premise that the best monetary policy that the Federal Reserve can follow is to establish a constant growth rate of the money supply independent of current economic fluctuations. The reasoning is that as the economy experiences changes in relative output, the money supply can have dramatic effects upon the economy. Additionally, by establishing a money growth rule, Friedman believed that this would eliminate the possibility of short-run mismanagement and, in the end, be more beneficial for the economy.