Alan Greenspan's Comeback Tour

More practical reasons explain why many market participants see Greenspan more like Cal Ripken, who struggled at the end of an otherwise stellar career, vs. Barry Bonds, the San Francisco slugger who seems to improve with age. First, Fed rate cuts beginning in January 2001 failed to stop the marauding bear market in equities. Second, the Fed chairman has been speaking for almost a year now about how "the fundamentals are in place for a return to sustained healthy growth," as he testified before Congress last July. To date, healthy growth remains elusive. Understandably, many have concluded Greenspan has lost the magic touch, even if his prognosticating abilities were always suspect.

A more forgiving explanation goes as follows: Monetary policy arguably didn't become truly aggressive until after the Sept. 11, 2001, terror attacks. Rate cuts beginning in January of that year sparked false hopes for a stock market recovery, but really only "got us away from tightness," as described by Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson in Chicago.

Notably, MZM -- the broadest measure of U.S. money supply -- had been dropping steadily in 2001 until after Sept. 11, when the Fed opened the liquidity spigots, setting the stage for record-setting home and auto sales in the months that followed. (Money supply fell again in early 2002, perhaps contributing to last year's falling equity prices and sluggish economy, but that's another story.)

The stock market apparently bottomed 13 months after Sept. 11, a bit longer than the normal six-to-nine-month lag. But that's close enough for quasi-government policy, considering the corporate scandals that erupted during the period and other postbubble overhangs, as well as fears of more terror attacks. Such factors, as well as the crippling overcapacity after the capital spending boom in the 1990s, also help explain the economy's ongoing reluctance to respond to rate cuts.