Dr. Alan Greenspan was reappointed to the Chairman of the Board of Governors of the Federal Reserve System to a full 14-year term, which began February 1, 1992, and ends January 31, 2006. Reagan appointed Greenspan after Paul Volker unexpectedly resigned in June, 1987 and Greenspan took office on September 1, 1974. He cannot be reappointed. Voker did an excellent job as Fed Chairman and helped set the stage for the economic growth during the 1980's. A new Chairman must be appointed by President Bush and the consequences can be tremendous.
The Federal Reserve Board has four significant purposes in their mission:
- conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
- supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
- maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
- providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
We need a steady hand at the helm of the Federal Reserve Board and one who works in concert with the President on economic policy. One only needs to think back to August 15, 1971 when President Nixon went against the advice of his economic advisors and imposed wage and price controls. Then chairman Arthur F. Burns and Paul W. McCracken, chairman of the President's Council of Economic Advisers, strongly advised against following the Congressional testimony of Professor John Kenneth Galbraith who urged the imposition of wage and price controls.
President Nixon's New Economic Program included wage and price controls as part of a sweeping package. It took years to recover from this economic disaster.
Our economy cherishes stability and any new chairman will be tested. The immediate test will be in the bond market and then the stock market will follow. A solid chairman is essential to avoid disruption in the economy. There seem to be few people that are anticipating or preparing for this new appointment. I believe the time is now to begin the discussions. We cannot afford a stealth appointment as has occurred with the latest SCOTUS nominee.
Here are a few potential candidates.
- Ben Bernanke, who took over as chairman of the president's Council of Economic Advisers this year after having served as a Fed board member. He would not be very good.
- Harvard economics professor Martin Feldstein, who was CEA chairman during the Reagan administration. He is very outspoken but would be okay.
- Former White House economic advisor, Lawrence Lindsay has been mentioned and he would be disasterous. The economy would be in for a wild ride and even a move to New Zealand might be considered.
- Columbia University professor Glenn Hubbard, Bush's first CEA chairman. He pushed through the 2003 tax cuts and the economy would be off to the races under Hubbard. He is a terrific pick and my favorite.