What We Said About the Fed in '93

The Beltway was abuzz with speculation over whether Alan Greenspan had cut a deal with the administration of U.S. president Bill Clinton to legitimize an expansionist fiscal policy in return for his reappointment as U.S. Federal Reserve Board chairman. In "Grasping Greenspanomics," Institutional Investor summed up the Fed chairman’s message to America as: "Forget the politicians, trust me." The question now is whether Americans — and world markets — placed too much trust in Greenspan, who, many critics now say, pursued a too-loose monetary policy that contributed to the implosion of the U.S. housing market, the carnage on Wall Street, the bailout binge in Washington and the ballooning federal deficit. "My fear is that this administration and the Fed are setting themselves up for a re-creation of the mistakes of the 1970s: a fiscal policy that is too expansive and a monetary policy that is too late, leading to stagflation," Allan Meltzer, an economics professor at Carnegie Mellon University, told II 15 years ago.