Oops, he did it again. Alan Greenspan, after being fingered as one of multiple possible triggers for last week’s market plunge, has risked new controversy by telling Bloomberg that that there was a “one-third probability” of a US recession this year.
Lex wonders if, like Margaret Thatcher’s successor, Ben Bernanke is cursed with an over-active predecessor. But Mr Greenspan is now a private citizen - and intergenerational conflict between central bankers is nothing new.
Of course, the evidence that it was in fact Greenspan’s comments last week that prompted market mayhem is pretty weak. Andrew Leonard, at Salon.com, considers and dismisses what he calls the Maestro theory - that when Greenspan mentioned “in the mildest of ways, that there might, just possibly, maybe, maybe, maybe, be a recession looming sometime in the not-too-distant (but also not-too-near) future, everyone from Shanghai to New York freaked out.”
“Already, some economists are declaring that the Fed must now ease interest rates at its next meeting, so as to give a cratering economy a shot of steroids. If true, that means that Greenspan is still quite able to set monetary policy, retired or no,” he noted last week.
But now, with his one in three, prediction, Mr Greenspan has become more specific - and it seems more pessimistic.
Philippe Bonnefoy, director of the Cedar Fund, a fund of hedge funds that he founded in 2002, told FT Alphaville, “[Greenspan] is not running the aircraft, but he’s still in the plane, and his comments make one pause for thought. He’s not a scaremonger.”
The implication is that, in the couched language of US officialdom, a Greenspan one-third might be bumped up to 50/50 in the minds of investors. Or at least, be treated as such by those positioning for a downturn.
One other thought occurs to us here at FT Alphaville - something that might be more effective in prompting a discreet silence from Mr Greenspan than the prospect of rankling his successor at the Fed.
The Maestro or Great Man theory only holds any water when the markets react. Last week, his comments (coincidentally or not) went hand in hand with a widespread sell-off, so Greenspan is a touchstone for market and investor sentiment.
The more he comments, the more likely it is that the markets continue on regardless - and the magic fades. Now that would be horrible.
