Bush Prolongs the Greenspan Agony

People often look back and wonder what JFK would have done in Vietnam had he been around to direct the war he got the country into. It will be almost as interesting to see how Fed Chairman Alan Greenspan handles the credit bust that is the likely consequence of the easy-money policies he has implemented as head of the nation's central bank.

There is a very high chance that the 78-year-old Greenspan will be around to deal with his own mess, after President Bush renominated him as Fed chairman Tuesday. Because of some Fed rules, Greenspan probably won't be able to serve out a full four-year term. But he will be in charge of U.S. monetary policy until January 2006.

Will the economy really fall into the debt trap Greenspan has built within the next 18 months? You bet.

Though he created the monetary conditions for the late-'90s stock market bubble and its subsequent bust, Greenspan is still viewed as an intellectual giant the world over. But he could easily spend the last days at the Fed explaining away the credit collapse he's been setting the country up for over the past four years with absurdly low interest rates.

So what, in particular, can we deduce from the fact that Bush has renominated Greenspan, who has served as Fed chairman since 1987?

First off, stock market bulls will short-sightedly see this as good news because it means interest rates will rise only by a small amount before the presidential election in November -- despite the inflationary pressures building up in the economy. If Greenspan had started hiking rates at the beginning of this year, it stands to reason that Bush would not have been so ready to renominate him.

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In keeping with TSC's editorial policy, Peter Eavis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send any to [e-mail].