This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Myths of the Greenspan Era

The 18-plus-year tenure of Federal Reserve Chairman Alan Greenspan finally comes to an end today. The buildup to his retirement has become the largest love-fest since Woodstock.

I won't review any of the accolades or criticisms that have become so ubiquitous the past few months. Instead, we are going to take a different tack. Rather than merely adding to the pile of the bon mots, let's discuss the many myths that have developed during Greenspan era:

Myth 1: Greenspan Whipped Inflation

This is by far the most pervasive fallacy of the era. It has added to the Maestro's legend -- undeservedly so, in my opinion. This is probably the myth that's easiest to disprove.

Numerous factors have led to low inflation over the past few decades; none of them have much to do with Greenspan.

To understand where you are, you must consider how you got here. And when it comes to whipping inflation, it all begins with Chairman Paul Volcker.

As the chart of long-term interest rates reveals, inflation was spiking in the late 1970s. The oil embargo of the early '70s started an inflationary spiral that threatened the entire economy. Growth was anemic, and Japan was a growing threat to the industrial heartland. A post-Watergate and post-Vietnam malaise hung over everything. It was not a particularly joyous period in the U.S. When Volcker was appointed Fed chairman, inflation was in the double digits, and growth was stagnant. That combination came to be known as "stagflation."

Fed Chair Volcker aggressively changed the way the Fed attacked inflation. He forced some unpleasant but necessary monetary medicine down the gullet of the American economy.

No helicopter drops for Volcker: The first thing he did was idle the Treasury Department's printing press. By limiting the growth of money supply -- and abandoning interest rate targeting -- he made it clear that no matter how painful in the short term, he was going to get runaway prices under control. Inflation, which had peaked at 13.5% in 1981, was down to 3.2% by 1983. The U.S. has been enjoying the fruits of his labor ever since.

Whip Inflation Then
Volcker did it before Greenspan arrived
Source: Ritholtz Capital
1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $117.81 0.00%
FB $105.45 0.00%
GOOG $750.26 0.00%
TSLA $231.61 0.00%
YHOO $32.94 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs