Sometimes Alan Greenspan doesn't make himself quite clear. The Chairman of the US Federal Reserve confided to a friend once that he proposed to his partner, television journalist Andrea Mitchell, on two occasions before she understood what he was saying. She accepted when he finally asked her: "Do you want a big wedding or a small wedding," and they married in 1997. On another occasion in 1995 he talked to reporters in Seattle about the economy. The resulting New York Times story was headlined: "Greenspan sees chance of recession". The Washington Post headline read: "Recession is unlikely, Greenspan concludes".
The head of America's central bank was in fact pleased with the contradictory headlines. They arose from what he called his "constructive ambiguity", according to Bob Woodward in a biography of Greenspan called Maestro. Always tell the truth, he says, but don't be afraid to confuse people in the process.
Maestro is a good title. Since his appointment by President Ronald Reagan in 1987, the Fed chairman, a devotee of baroque music, has conducted the performing parts of the American economy as if with a baton, sometimes sending market prices up or down according to how the "constructive ambiguity" of his demeanour has been interpreted.
His influence is such that, once, in 1996, stock markets across the world dipped in expectation of an interest rate increase when he slipped the phrase "irrational exuberance" into a speech about the US economy. Aged 74, Greenspan still has another three years in office and will remain central not just to the American but to the world economy. How he handles the Federal Reserve as the US economy slows down could make or break the Bush administration. That in turn will affect other economies throughout the world. As a sign in his Washington office states: "The buck starts here."
The Fed is required by law to to try to maintain stable prices in the US and keep down inflation, while at the same time encouraging sustainable economic growth. For practical purposes that means keeping annual price increases below 3 per cent and growth to about the same figure, on the assumption that higher growth means a rapid rise in wages. To Greenspan, inflation is enemy number one.
Every six weeks a committee of the seven Fed governors, all of them 14-year appointees, and five presidents from federal reserve district banks, meet under Greenspan's chairmanship to determine interest rates. They lower the rate to stimulate the economy, as happened on January 3rd this year, or raise it to prevent it overheating, as the Fed did several times during the 1990s boom. The American central bank also has the power to trade in the bond market, pumping money into the banking system by buying Treasury bonds to make borrowing easier, or selling treasury bonds to take money out of the system and cool down the stock market.
Consensus is required, but over the years Greenspan has asserted intellectual control of the committee. He is the main man. Nobody is allowed to forget that. His vice-chairman Alan Binder left in 1996, profoundly frustrated at what he perceived as Greenspan's obsession with not taking risks, and believing Greenspan not to be a straight person.
Bill Clinton recognised Greenspan's power and influence when he was elected President in 1992. He invited the Fed chairman to meet him in Little Rock while still putting his cabinet together. Over lunch Greenspan, who eats little but vegetables, outlined a blueprint for economic recovery. If Clinton acted to reduce the federal deficit by at least $140 billion (€150 billion), he made clear, this would force down long-term interest rates by lowering expectations of inflation. That would encourage refinancing at more favourable rates and increase consumer spending, which would stimulate the economy. The economic growth would in turn bring down unemployment.
Clinton was intrigued with Greenspan, a New Yorker of Jewish parents, whose mother, a furniture store saleswoman, brought him up alone. The two men had one thing in common: both played the saxophone. Greenspan had toured the country in the 1940s with the Henry Jerome Band - though, typically, while the other members smoked pot late at night, he read economics and did the band's accounts.
The central bank chief left the meeting with Clinton thinking the new president either shared his views or was a clever chameleon. The first would be a compliment, Greenspan thought, according to Woodward's account; the second would mean this guy was really something if he could fool the Fed chairman.
Clinton delivered, despite opposition from within the Democratic Party, and the American economy boomed, just as Greenspan predicted. By raising interest rates when inflation threatened and cutting them when the economy looked like slowing down, he helped ensure a spectacular, prolonged boom.
The judgment of this austere, bespectacled banker who exudes gloom and gravitas is not instinctive. Obsessive about data, Greenspan checks the market figures every hour, accessing about 50 charts by pressing button A on his computer keyboard. With his passion for mathematics, he pores over company reports, inventory stocks, shipments and price indices for hours, looking for clues about the direction of the economy.
He doesn't profess to understand everything, and admits that he cannot account fully for the high growth, soaring stock market, record employment and low inflation of the 1990s boom. Nor is he always sure of the result of his actions. As he commented after his first discount rate move back in 1987, "If you're not nervous, you shouldn't be here", a maxim he often repeats to himself. His first big test came on "Terrible Tuesday", October 20th, 1987. The head of the New York Federal Reserve Bank, Jesuit-educated Irishman, Gerald Corrigan, rang and said: "Alan, you're it. Goddamit, it's up to you. This whole thing is on your shoulders." Greenspan replied simply: "Thank you Dr Corrigan." He calmed everyone down and a disaster was averted. He doesn't always get it right. In July 1991 Greenspan advised reporters that the economy was set for a rapid recovery. "The decline is behind us," he said. The economy nose-dived for the rest of the year. President George Bush subsequently blamed him for losing the 1992 election by not lowering interest rates enough.
The new President Bush got off to a shaky start with the man who controls the national optimism level. Greenspan announced a 0.5 per cent rate cut on January 3rd without informing him beforehand, underlining his independence of government. Bush praised the banker's move and then apologised. Presidents are not supposed to comment on the Fed's actions, even when they are seen as helping the White House, to avoid the appearance of exerting undue political pressure.
But if Greenspan, without any "constructive ambiguity", announces a further rate cut, as expected, next week, after a scheduled meeting of the Federal Reserve, then everyone in the White House will be happy.
