CS Question #1: What is the Fed?

Alan Greenspan was born in New York City in 1926. The son of a stockbroker, Greenspan showed an early interest in numbers and markets. However, after graduating from high school, Greenspan attended the famous Julliard School to pursue a career in music. His first job was as a saxophone player in a swing band. When he was 19, he enrolled at New York University to study economics. In 1948, he received a bachelor's degree in economics. He earned his master's degree in economics in 1950. Greenspan pursued his Ph.D. at Columbia University. He left the program to begin working as a professional economist. He later founded an economic consulting firm, Townsend-Greenspan and Company, with bond trader William Townsend. In 1987, he dissolved the firm to dedicate himself to a career at the Federal Reserve. Greenspan first began working for the government when he served as Director of Policy Research for Richard Nixon's 1968 presidential campaign. He then served in President Ford's administration as Chairman of the Council of Economic Advisers. He went back to private business until 1987, when President Reagan appointed him Chairman of the Federal Reserve.

Greenspan has worked as Chairman of the Federal Reserve for the past three presidents. This endurance is a testament to his abilities to control the U.S. economy. In his position, he controls U.S. monetary policy by influencing short-term interest rates. This, in turn, affects the cost of credit to U.S. consumers and businesses. As demonstrated earlier, his comments can influence the decisions of both consumers and investors. Greenspan chooses his words carefully. His political views do not sway his economics policies or actions. For this reason, he has worked under both Republican and Democratic presidents. Greenspan is a conservative. His policies pursue subtle economic adjustments. He does not implement sweeping reforms that could threaten the stability of the economy.

CS Question #3: How does Alan Greenspan influence the economy?

As Chairman of the Federal Reserve, Greenspan oversaw the economic recovery that occurred after the 1987 recession. Although his policy is basic, the factors involved are wildly complicated. When the economy grows too quickly, consumers and corporations often borrow too much money. They collect immense amounts of debt. When these debts are due, or their interest rates change, the economy can shrink into recession. Greenspan attempts to stabilize the U.S. economy by increasing or decreasing interest rates. The rates are changed according to the economic situation at hand. If the economy grows too quickly, he increases interest rates. This increases the cost of borrowing and slows economic growth. If the economy is not growing fast enough, Greenspan drops the interest rates. This encourages investment. Additional investment often leads to economic growth. Although this explanation sounds simple, many factors complicate the issue. Greenspan has been able to anticipate those factors and apply his policies to achieve financial stability and growth in the U.S. economy. In fact, most people credit Greenspan with leading the U.S. economy to one of the most productive periods in its history.

CS Question #4: How does changing the interest rate affect economic growth?

Further Thought:

1. What makes Alan Greenspan "the second most powerful man in America"?
2. Why do investors listen and react so strongly to the comments of Alan Greenspan?
3. How do you think the stock market would react if Alan Greenspan retired as Chairman of the Federal Reserve?