The Greenspan Effect

Overview

The United States Federal Reserve System has played a key role in U.S. economic affairs since it was established in 1913. Still, it has never enjoyed the unprecedented power and influence it wields today over global financial markets.

The reason? Alan Greenspan. Greenspan first gained attention when he stopped the 1987 market crash in its tracks, propelling the U.S. economy into its longest period of uninterrupted growth in history. But it was in a speech the evening of December 5, 1996, when Greenspan's words truly revealed their unprecedented powers. When his seemingly innocuous comment about the sky-high stock markets--"How do we know when irrational exuberance has unduly escalated asset values?"--hit global wires, world markets immediately plunged as much as five percent. The next morning, with Greenspan's warning on every New York trader's lips, the Dow immediately dropped two percent. To reeling traders, the dollar value of understanding Greenspan--and the instantaneous effect his speeches would have on markets--became clear.

THE GREENSPAN EFFECT recalls these and other Greenspan episodes in the most honest, dependable words available--Greenspan's own. Excerpts of his speeches from 1987 to the present are followed by expert analyses of those speeches, and nuts-and-bolts reporting on global financial reactions. This up-close examination of Alan Greenspan's tumultuous regime discusses his early career, and how he developed the bottom-up analytical approach that is today his hallmark at the Fed. It shows how, unlike the politicians who appoint him, Greenspan has never allowed political distractions or personal foibles to interrupt his chosen course. By focusing on Alan Greenspan's public pronouncements as Fed chairman, THE GREENSPAN EFFECT provides a concise, accurate distillation of Greenspan's thinking on today's most important economic topics. It presents an historic, solidly researched overview of how these pronouncements have affected Wall Street and other world financial markets. In so doing, this immensely valuable profile equips investors and businesspeople with today's most important tool--an analysis of how Alan Greenspan has responded in past economic environments, what he is likely to do in the future, and how financial markets will react.

Table of contents

Part I: Greenspan, The Fed, and The Stock Market.
The Fed Chairman as World Celebrity.
The Fed's Levers of Power.
Part II: Words That Lift Markets.
The "Exceptional" Economy.
The "Oasis of Prosperity."
The "Salutary" Sell-Off.
The Wealth Effect.
Part II: Words That Sink Markets.
"Irrational Exuberance" in the Stock Markets.
Battling Inflation.
Tight Labor Markets.
Financial Contagion.
Part IV: Remaking Financial Institutions.
Reforming Social Security.
Merging Commercial and Investment Banking.
Reforming Federal Deposit Insurance.
Derivatives.
Part V: World Crisis Manager.
The Asian Crisis.
The Crash of '87.
The Gulf War.
Part VI: Competing in the Global Economy.
U.S. International Competitiveness.
Foreign Investment in the U.S.
Economic Reform in Russia and Eastern Europe.
The Virtues of Capitalism.
Part VII: Critical Investments.
The American Education System.
Consumer Saving, Credit, and Retirement.
Corporate Restructuring.
Income Inequality.
Small Business Finance.
The Farm Economy.
Mortgage Finance.
The Federal Budget Deficit.
Part VIII: Greenspan Looks Toward the 21st Century.
The "New" Economy.
The Future of the Federal Reserve.
The Future of the Banking System.
The Future of the Financial Services.
Technology and the Future.
Part IX: The Investor's Roadmap to Greenspan.
Explaining the Greenspan Effect.
The Game of Deciphering Greenspan.
What Matters--and Doesn't--When the Chairman Speaks.
Greenspan and the Future of the Stock Market.

Review quote

How Greenspan made the Fed chairmanship such a pinnacle of power and how he influences world markets are explored in this book by David B. Sicilia and Jeffrey L. Cruikshank. They have done their homework on this fascinating economist producing a lively read despite the profound dullness of economics.

Review quote

The authors dissect virtually every speech or written statement the Chairman has made since 1987. Even more impressively, they go the extra mile and forecast what Greenspan will say in the future and what impact his words will have on the global economy...In post-Cold War America and the world, Greenspan's utterances have an obvious impact, but never before have they been so exhaustively scrutinized.

Review quote

'Recommended for both public and academic libraries.'

Review quote

An interesting idea for a book, which may benefit the general public and policymakers.

Review quote

'Remember the Little Red Book with the thoughts of Chairman Mao? It is hard to imagine any political figure now in power who could inspire a similar urge to read and study his every utterance. Except, perhaps, for Alan Greenspan...The Chairman's words are always printed in boldface, the better to savor his wisdom and prose. And, it turns out, there is a lot to savor...Studying the observations of Chairman Alan is a good way to get a reflective and thoughtful view of the economy and the challenges confronting the Federal Reserve...This book fills a function with its usually clear explanations...As an introduction to Greenspan, it will be useful to the many who wrongly fear his thoughts are simply too arcane.'

Biographical note

David B. Sicilia, Ph.D, is an experienced consultant, business historian, and author. He has received numerous awards and fellowships, including the Charles Warren Fellowship from Harvard University and a Sloan Foundation grant for his work on stakeholder theory. Dr. Sicilia is the author or coauthor of numerous influential books, including The Engine That Could: Seventy-Five Years of Value-Driven Changes at Cummins Engine Company and The Entrepreneurs: An American Adventure.

Jeffrey L. Cruikshank is a cofounder of Kohn-Cruikshank, Inc., a Boston-based communications consulting firm. He has written or cowritten a number of business-related books, including the bestselling Do Lunch or Be Lunch, and was a coauthor with David Sicilia of The Little Engine That Could.

Back cover copy

The first unvarnished analysis of the true meaning behind Alan Greenspan's words. Alan Greenspan--the inimitable Chairman of the United States Federal Reserve System--can send financial markets around the world crashing with a comment, or build fortunes just as quickly. Yet he is largely inaccessible and little understood by investors, policy-makers, and the broader public. Who is Alan Greenspan? And how can investors predict, with any degree of confidence, the effects his pronouncements will have on global financial markets? The Greenspan Effect cracks the code.

This complete analysis of the writings and speeches of Greenspan throughout his tumultuous regime, and how they have affected financial markets, will help investors understand which words matter, which words don't, and how to separate meaningless rhetoric from market-moving signals. It offers an in-depth explanation of the incomparable Greenspan phenomenon, anticipating how he will think about--and act upon--tomorrow's most pressing financial topics. Most important, it encapsulates Greenspan's thinking on a broad round of key economic and social issues, and provides a revealing analysis of how he has impacted, and will continue to impact, world financial markets.

Get an invaluable short course in the science of "Greenspanology"--one which will help you understand Alan Greenspan's future speeches and their impact on world financial markets--in The Greenspan Effect.