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Famous Central Bankers: Alan Greenspan

Famous Central Bankers: Alan Greenspan

Alan Greenspan is one of the most notable and well known economists of the last century, due to his position as Chairman of the Federal Reserve during the dotcom bubble as well as his pre Great recession forecasts. Besides his role as the Chairman of the Fed, Greenspan has held many other roles, both in an advisory capacity to many large banks and funds, as well as owning his own consulting firm, Greenspan Associates, LLC.

After his appointment to the Fed in 1987, Greenspan had to navigate multiple recessions and crises, notably the stock market crash of October 1987, the Asian financial crisis of 1997, the dotcom bubble burst of 2000, and the terrorist attacks of September 11th, 2001. The policies Greenspan implemented helped lead the US to what was at the time the longest expansionary period in history - this was during the 1990s. After acting quickly and ensuring liquidity in the markets during the crash of 1987, Greenspan’s policies of anti-inflation and price control allowed the US economy to expand for a decade, before the dotcom bubble burst. As is the theme with all central bankers, their policies fall under discretionary monetary policy as opposed to rules based policy.

Once Greenspan left his position in 2006, he began his own consulting firm, and most notably forecast the recession of 2008 in 2007. After his forecast, he was hired in an advisory capacity by Deutsche Bank and hedge fund Paulson & Co. The recession, caused largely in part by the housing market and the collapse of the subprime mortgage market, has been in part blamed on Greenspan due to his economic policies implemented during the early and mid 2000s. Despite Greenspan’s work to help the US economy expand so dramatically, he has a controversial legacy due to some of the errors made during his tenure, particularly in the early 2000s. Greenspan cut interest rates to almost unprecedented levels in the early 2000s, which combined with his endorsement of adjustable rate mortgages, make him a polarizing figure to those who lost money in the recession.

/ Central Bankers

Famous Central Bankers: Ben Bernanke

Famous Central Bankers: Ben Bernanke

Ben Bernanke is an American economist, who’s work on monetary policy and macroeconomics earned him positions as a professor of Economics at Princeton, Stanford, and MIT, as well as led him to become Chairman of the Federal Reserve from 2006 to 2014. He was tasked with navigating the housing crisis and recession of 2008, a task which many experts believe he performed well.

The 2008 banking crisis led to a lack of confidence in the banking system as a whole, but Beranke’s aggressive and largely experimental approach to the crisis helped restore confidence to the financial system, as seen by the longest expansionary market in US history following the crisis. One of Bernanke’s most notable moves was to slash the interest rates to almost 0%, allowing banks to lend to each other and customers at lower rates, stimulating the economy.

Besides his policy moves, Bernanke made a highly controversial decision to bail out a few of the huge financial institutions that were about to go bankrupt during the crisis, fearing their failure would only serve to worsen the crisis. For example, the Fed incentivized companies like JP Morgan to take control of Bear Stearns or Merrill Lynch. Bernanke wrote about how close the global economy came to collapsing in his 2015 book, which would have occurred if not for the Fed’s moves. However, contrarians believe Bernanke should have foreseen the crisis and is in part responsible for the events. Overall, Bernanke was the most influential person in the US during the crisis due to his control over Fed policies, which is a place that naturally brings critics.

Bernake's control over Fed policy highlights the room for interpretation created with a discretion based monetary policy. With the housing crisis, people and policy makers showed that it is very possible for those in charge to miss markers that point towards the downfall of a market and it is very clear that they can fail to act in time to prevent or reduce the impact of downswings. With Ampleforth, the protocol acts on market forces in a rules based format, removing the likelihood of human emotion, biases, and political alignment in times of crisis. Rules based systems are not without their challenges. However, if a rules based system like Bitcoin or Ampleforth were used as a globally prior to 2008 the great recession may have played out much differently.

/ John B. Taylor

Famous Central Bankers: John B. Taylor

Famous Central Bankers: John B. Taylor

John B. Taylor is one of the greatest economic minds of the 20th and 21st centuries. His work in macroeconomics and monetary policy helped create one of the most important Macroeconomic tools today, The Taylor Rule, which is used as an interest rate forecasting tool. He served as an  economic advisor to President’s Ford, Carter, George H. W. Bush, and George W. Bush. Currently, Taylor is a professor of economics at Stanford University and has won numerous awards in the field of economics, including the 2016 Adam Smith Award and 2015 Truman Medal for economic policy.

The Taylor Rule, as coined following his 1993 research paper, proposed that manipulation of short-term interest rates by the central bank could serve as a counter and pro cyclical force on the economy. He proposed to raise rates when growth and inflation was excessive and cut rates if they fell below targets. His simple interest rate equation is now largely used as an effective formula for interest rate levels.

Besides his work on monetary policy and what the central bank should attempt to manipulate, Taylor has also done extensive research on the financial crisis of 2008. In particular, Taylor focuses on the actions of the Federal reserve, noting how interest rates were kept too low for too long, allowing for an excessive amount of output growth and inflation to occur. He proposed that the economic crisis was a direct result of government inactions, actions, and interventions, rather than a failure by the private economy.

Following the crisis, Taylor has stressed the importance of a stable monetary policy, rather than the quantitative pro and counter cyclical measures that the Fed had been using. Balance in the economy is of the utmost importance to Taylor, and his work reflects that.

Ampleforth’s protocols and automatic expansions as well as contractions serve to create the stability in the Ampleforth network that John B. Taylor believes should be present in the US economy. Fiat counter cyclical pressures are driven by those in charge of the Fed and can be influenced by any number of factors. The countercyclical pressures present in Ampleforth are market drive, rules-based, and non-dilutive for anyone holding the token, creating a static, stable policy. There is not an easing due to external pressures, rather, the policy to absorb shocks in the Ampleforth Network is constant, just as Taylor wants of US economic policy.

To understand more about creating a stable system that is less prone to biases and human driven overcorrection and error, read our chapter on Rules vs. Discretion.