The financial world lost its most enigmatic oracle yesterday. Alan Greenspan, the former chairman of the US Federal Reserve who presided over the longest peacetime expansion in American history, has died at the age of 100. For global markets, the immediate fear is not of a ghost haunting the trading floors, but of uncontrolled volatility.
The man who once claimed to have found a 'new economy' where inflation was tamed by technology is gone. The bond market, his old sparring partner, is already twitching. Gilt yields are oscillating in early Asian trading, a classic sign of capital flight to safe havens.
The dollar is softening against the yen and the Swiss franc. This is the Greenspan Put, now void. For two decades, markets believed that Greenspan would always step in with rate cuts at the first sign of trouble.
That safety net has now been withdrawn. His legacy? A monetary policy so loose it inflated the dot-com bubble and later the housing bubble that nearly broke the world in 2008.
Yet, he was also the master of 'measured language' that could move billions. The Fed will issue a statement, no doubt praising his 'intellectual rigour'. But the real tribute will be written in the ticker tape.
For investors, the question is simple: without the maestro, who will conduct the orchestra? The Bank of England's chief economist has already warned of 'inflationary pressures' in the wake of the news. Fiscal responsibility, already a meme, now becomes a necessity.
The era of cheap money may well have been buried with him.
