, Research Paper
Congress established the Federal Reserve, the central bank of the United States, in 1913 to provide the country with a more secure, more flexible, and more stable monetary and financial system. Presently, the Federal Reserve’s duties fall into four general areas: (1) conducting the nation’s monetary policy; 2) supervising and regulating banking institutions and protecting the credit rights of consumers; (3) maintaining the stability of the financial system; and (4) providing certain financial services to the U.S. government, the public, financial institutions, and foreign official institutions, including playing a major role in operating the nation’s payments system. The seventy-three year old Republican has headed the Federal Reserve since Ronald Reagan appointed him in 1987. Federal Reserve Chairman Alan Greenspan may be the most omnipotent unelected official in Washington and the most powerful person when it comes to directing the U.S. economy. As Federal Reserve Board chairperson, Greenspan leads two committees: its Board of Governors, which manages regulation and administrative matters, and its Federal Open Market Committee, which controls the real authority over the economy. One of its areas of influence is determining at what interest rates the government will lend out money, a decision that can hurry or shrink the economy, and can increase or reduce inflation rates.
Alan Greenspan was born March 6, 1926 in New York City and received a Bachelors degree in economics in 1948, a Masters degree in economics in 1950, and a Ph.D. in economics in 1977, entirely from New York University. Afterwards, he attended Columbia University to perform advanced graduate study under the teachings of Arthur F. Burns, a notable economist. Greenspan then taught at New York University from 1953 to 1955 and formed a consulting firm where from 1954 to 1974 and from 1977 to 1987 Dr. Greenspan was Chairman and President of Townsend-Greenspan & Co., Inc.
His friendship with Ayn Rand and her objectivism philosophy deeply influenced him. Rand s objectivism philosophy supports laissez-faire capitalism and encourages rational selfishness. During Richard Nixon s 1968 presidential campaign, Greenspan became an adviser due to Rand s insistence. He continued to advise President Nixon earnestly until he became the chairperson of the Council of Economic Advisers in 1974. Greenspan remained at the council throughout Gerald Ford s 1974-1977 administration, during which he was reducing inflation with his policies while also leading to a recession, which perhaps was the cause of Ford s defeat for reelection.
From 1981 to 1983 Greenspan was the chairperson of the National Commission on Social Security Reform and served on the boards of numerous national companies. President Ronal Reagan appointed him the chairperson of the Federal Reserve in 1987. Being a moderate Republican, he believed in deregulation of the banking industry and resisted government interference in the economy, especially during the recession crisis of the early 1990s. Greenspan was re-appointed to his second term as head of the Federal Reserve Board in January of 1992. He opposed tax cuts because he believed that they would assist to the growing federal deficit and endorsed President Bill Clinton s 1993 deficit-reduction programs with the hesitance that spending cuts were much better than tax increases. Greenspan s third term as chairperson of the Federal Reserve Board started June 20, 1996 and will end June 20, 2000. Greenspan’s actions sometimes irritate the Clinton Administration, which would like to see a bit faster growth and a bit lower interest rates, but those can lead to high inflation, which Greenspan loathes above all else.
Greenspan has been a member of Time magazine’s Board of Economists, a senior adviser to the Brookings Panel on Economic Activity, and a consultant to the Congressional Budget Office. His previous Presidential assignments include the President’s Foreign Intelligence Advisory Board, the Commission on Financial Structure and Regulation, the Commission on an All-Volunteer Armed Force, and the Task Force on Economic Growth. Dr. Greenspan has served as Chairman of the Conference of Business Economists, President and Fellow of the National Association of Business Economists, and Director of the National Economists Club. He has also received honorary degrees from Harvard, Yale, Pennsylvania, Leuven (Belgium), Notre Dame, Wake Forest, and Colgate universities. His other awards include the Thomas Jefferson Award for the Greatest Public Service performed by an elected or appointed official, presented by the American Institute for Public Service, 1976 (joint recipient with Dr. Arthur Burns and William Simon); and election as a Fellow of the American Statistical Association, 1989.
The Federal Reserve System, commonly called the Fed, is the central banking system of the United States. A central bank serves as the banker to both the banking community and the government and also distributes the national currency, regulates monetary policy, and plays a major role in the supervision and regulation of banks and bank holding companies. These functions are the responsibilities of officials of the Board of Governors and the top officers of the twelve district Federal Reserve banks, located throughout the nation.
Paul Volcker threw the American economy into recession in the late 1970s and kept it there through the early 1980s in an ultimately successful attempt to destroy runaway inflation. Because of this, Greenspan s early years at the Federal Reserve were difficult. Volcker concentrated in pointed public commentary and emphasized the political nature of his position. Greenspan adopted the opposite attack, and in a way, the immense authority that he exercises today is the result of the mystique he has created about himself.
Those early years at the Federal Reserve were not Greenspan’s best, but then they were not the best years for the American economy either. Greenspan was an inflation belligerent when he first came into office and the conglomeration of low unemployment (5.5% in 1989) and the massive Reagan-era deficits encouraged him to slam the brakes. The Federal Reserve increased interest rates in 1989 and again in 1990, but then the recession of 1990-1991 gave effects that still lingered in the country in 1992. This cannot be blamed on Greenspan, although it does represent the moment when his fabled forecasting skills failed him. Those skills have been more dependable during the Clinton administration with a time of sustained growth, low inflation, and unemployment rates that have not been seen since the early 1970s. Throughout this period, particularly in the last two years, Greenspan has shown an invigorating lack of intolerance and has been inclined to use the Federal Reserve s influence to start even the slightest hint of inflation.
The reason that Alan Greenspan is so powerful is because the Federal Reserve’s crucial powers are concentrated in the Board of Governors, which is paramount in all policy issues pertaining to bank regulation and supervision and in most aspects of monetary control. Since he is the head of the Board of Governors he has America s economy in his hands with his fluctuations in interest rates and in controlling inflation. In the future, hopefully he will do as good of a job as he has already done in the past twelve years.
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