When Dr.Alan Greenspan, who passed away at 100, took the Fed chairmanship in July 1987, the Fed already held massive power under Paul Volcker. That was memorialized in the "Secrets of the Temple" released in 1987. Greenspan would add many layers to the Fed’s power during his five four-year terms, even though he was intellectually opposed to big government. He tightened the grip of the Chairman, participated actively in the Swiss-based Bank for International Settlements, and approved the international banking standards in the Basel accords.
He almost doubled the Washington DC staff to over 3000. Importantly, Greenspan changed the Fed’s approach to monetary policy.He moved the Fed from Volcker’s monetarism and control of the M2 money supply — a system that some blame for the depth of the 1982 recession — to data dependence and Fed funds targeting.TRUMP'S FED CHAIR PICK KEVIN WARSH IGNITES FIGHT OVER INDEPENDENCE ON CAPITOL HILLGreenspan was renowned as a data geek.
He used such measures as rail car loadings and tons of production to form his judgment on the appropriate Fed funds rate.At times he referred to commodity price indices, a nod to his economic origins as a sound money advocate.
Years later, the rate-setting system would evolve into formal inflation-targeting in 2014, but in the 1990s and first years of the 21st century, financial markets came to accept the notion that Alan Greenspan’s judgment and mastery of data would suffice.In 1996, Greenspan cautioned Wall Street with the phrase "irrational exuberance".It came in the middle of a decade-long boom that included the peace dividend and Newt Gingrich’s push for lower tax rates. Investors listened intently but remained exuberant all the way into the devastating 2000 dot-com crash.
Greenspan’s thinking on asset bubbles evolved away from anticipating them to the point in 1999 that he told Congress: "Human nature has exhibited a tendency to excess through the generations with the inevita...