Intended federal funds rate Change, 1991 to 2001. Ten year overview.
2001 (10 DOWN) Basis Pts. Final Level
November 6 -50 2.00
October 2 -50 2.50
September 17 -50 3.00
August 21 -25 3.50
June 27 -25 3.75
May 15 -50 4.00
April 18 -50 4.50
March 20 -50 5.00
January 31 -50 5.50
January 3 -50 6.00
2000 (3 UP)
May 16 +50 6.50
March 21 +25 6.00
February 2 +25 5.75
1999 (3 UP)
November 16 +25 5.50 <--- Twiddling-|
August 24 +25 5.25 |
June 30 +25 5.00 |
|
1998 (3 DOWN) |
November 17 -25 4.75 |
October 15 -25 5.00 |
September 29 -25 5.25 |
|
1997 (1 UP) |
March 25 +25 5.50 |
|
1996 (1 UP) |
January 31 -25 5.25 |
|
1995 (1 UP / 2 DOWN) |
December 19 -25 5.50 |
July 6 -25 5.75 |
February 1 +50 6.00 |
|
1994 (6 UP) |
November 15 +75 5.50 <--- Twiddling-|
August 16 +50 4.75
May 17 +50 4.25
April 18 +25 3.75
March 22 +25 3.50
February 4 +25 3.25
1992 (3 DOWN)
September 4 -25 3.00
July 2 -50 3.25
April 9 -25 3.75
1991 (10 DOWN)
December 20 -50 4.00
December 6 -25 4.50
November 6 -25 4.75
October 31 -25 5.00
September 13 -25 5.25
August 6 -25 5.50
April 30 -25 5.75
March 8 -25 6.00
February 1 -50 6.25
January 9 -25 6.75
On Aug. 11, 1987 Greenspan took over Chairmanship of the Fed. Ten years later he was hailed as a God. Five years after that, his policies were discredited, but the cult of personality still remains. Does Alan Greenspan have “secret knowledge” giving him the supernatural ability to control the economy? Is Greenspan the visionary everyone thinks he is? I, for one, certainly don’t think so.
Let’s take a look at the boom years of the 90’s. Ushered in by 18 consecutive rate cuts starting in 1990 (1990 had 5 down), it doesn’t take a genius to determine that you will create a boom with all that cheap money.
More worrisome is the period between 15 / 11 / 94 and 16 / 11 / 99 (denoted by ‘twiddling’ above). Doesn’t it strike you that the economy would have been better served by holding rates constant, and allowing long-term business planning to have taken place? Indeed, it was just twiddling – the rate never varied more than –75 to +50 basis points away from the initial / ending rate.
Then, of course, Greenspan decided that he couldn’t figure out why inflation wasn’t happening. We have all heard about the problems and the belief that technology investments finally paying off were behind growth without inflation. When growth continued without inflation, Greenspan got spooked. He cranked up the rate a whole percentage point within 6 months. The resulting shock to the capital markets caused a sharp contraction that cut off funding to many capital dependent .com enterprises, resulting in the collapse of the entire technology sector.
So, why the cult of Greenspan? From a look at the numbers, without rose coloured glasses on, we see a obvious stimulus, followed by tinkering, and closed with a disastrous decision to restrict capital. Certainly not a God, but more than enough hubris for one man.