Alan Greenspan, the former Federal Reserve chairman who presided over the longest peacetime economic expansion in American history and became synonymous with the power of central banking, has died at the age of 100. His passing, while not unexpected given his advanced years, sends a shudder through global financial markets that are already wrestling with inflation, rising gilt yields, and the spectre of capital flight. For a generation of investors, Greenspan was the oracle of monetary policy, the man who could soothe or spook markets with a single ambiguous phrase. His legacy is a paradox of prosperity and pricked bubbles, a cautionary tale for those who still believe central bankers can defy gravity.
Greenspan took the helm of the Federal Reserve in 1987, just in time for the Black Monday crash. He famously acted swiftly, providing liquidity and restoring confidence, a template that would be repeated in subsequent crises. But it was the 1990s that defined his tenure. Inflation was tamed, productivity surged, and the dot-com boom created unprecedented wealth. Greenspan was hailed as a maestro, a master of the 'Goldilocks economy'. Yet his reluctance to curb irrational exuberance, a phrase he himself coined, laid the groundwork for the tech wreck of 2000. Later, his advocacy of low interest rates in the early 2000s fuelled the housing bubble that, when it burst, brought the global financial system to its knees.
Markets today are jittery for good reason. The Greenspan era taught us that central bank power is finite, and that intervention often stores up trouble for the future. As we digest this news, gilt yields are already ticking upwards, and the pound is weakening against the dollar. Investors are asking whether the current Federal Reserve chair will be as deft, or as lucky, as Greenspan. The answer, I suspect, is that luck has run out. The era of free money is over, and the hangover is severe. Greenspan's death is a reminder that markets are not machines but human constructs, prone to error and excess. His passing may be the final full stop on an era of American economic dominance that now seems increasingly fragile.
For British investors, there are parallels to consider. Our own fiscal incontinence, with government spending spiralling and inflation eating into savings, echoes the excesses Greenspan enabled. The Bank of England now faces a similar dilemma: how to tighten policy without breaking the economy. Greenspan's legacy suggests that there is no painless path. The liquidity illusion that propped up asset prices for decades is evaporating, and the reality of mean reversion is setting in. As we mourn a giant of finance, we should also prepare for a more volatile, less predictable world. The tragedy is not just that Greenspan is gone, but that the certainties he represented have long since departed.
