On Greenspan’s Successor

Morgan Stanley’s Stephen Roach takes a look at what may be the most important appointment President Bush makes — and he does not come away very confident about it:

"And that, I’m afraid, brings me to the most controversial point of all — the selection process, itself. With the consent of the US Senate, the choice of selecting a new Fed chairman falls to the President. Generalizing on the basis of George W. Bush’s most recent senior appointments, I suspect the President will look for three key traits in a new Fed chairman — familiarity, loyalty, and a pro-growth bias. This is not meant to be critical. It is a carefully determined observation based on the President’s record. In the case of a Fed Chairman, those criteria imply that President Bush will probably not select the next Paul Volcker — a tough, independent policy maker who might be predisposed toward “tight money.” While this is inconsistent with the President’s statement on this matter at a recent press conference, in the end, I still believe George W. Bush will opt for a trusted team player who shares the goals and objectives of his political agenda.

This could well pose a serious problem for US financial markets. With America’s external financing critically dependent on the foreign confidence factor, any doubts over central bank independence will not go over well. That’s especially the case for a US economy beset with record imbalances, a potential inflation scare, and bubble-like conditions in asset markets.  Foreign investors have been extraordinarily generous in the terms they have offered for funding America’s external deficit. In part, that generosity may reflect the “Greenspan factor” — the confidence that investors have in Alan Greenspan’s adroit management of periodic international financial crises. With the Greenspan factor about to be taken out of the confidence equation, any fears of an “easy money” Fed could well prompt foreign investors to exact concessions in those financing terms in the form of a weaker dollar and higher real interest rates."

Or, to rephrase Mr. Roach’s concerns, consider this:


Lets hope the Fed replacement is more John Roberts than Harriet Miers . . .

UPDATE:  October 10, 2005 8:06am

The Seattle Post Intelligencer requests: No Bush friend for Fed top job, while CNN suggests that
Bush close to naming Greenspan successor


Transition Curse
Stephen Roach (from Zurich)
Morgan Stanley, Oct 07, 2005

Tom Toles via Yahoo!

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  1. JayM commented on Oct 9

    Interesting post ….hmmm lets see ….loyality, familiarity and pro-growth…..lets drop back to 1978/1979 …oil prices permeating price structures both upstream and downstream .
    President Carter appoints G William Miller Fed Chief on those “attributes” …

  2. cam from Hulver’s site commented on Oct 9

    Voting, Edge Effects and Restrictive Movement

    PR and FPTP voting in New Zealand and Germany; verdict on the (faux) messiness of the outcomes. Edge Effects and multi-ethnic fault lines at the rim of Empire. Destroying the village to save it.

    PR vs FPTP in New Zealand
    The New Z…

  3. Tim commented on Oct 9

    OK, after reading Contrahour, I feel compelled to offer my own theory, which is only slightly less wacky than Barney the dog:

    Fed Chair Heir Wild Card

  4. royce commented on Oct 10

    The nominee is going to be whichever aide he picks to find a good nominee. That seems to be the best route to high office in the White House:

    “Mr. President- after reviewing the backgrounds of hundreds of candidates, nobody is more suited for this position than I. I’m the top candidate by far.”

    “Terrific! It’s so amazing that so many of my personal friends are tops in their fields, isn’t it?”

    “Yes, sir. . . It’s, uh, uncanny how good you are at judging people.”

  5. Mark T commented on Oct 10

    Guess it depends if you buy into Roach’s global imbalances theory. Foreign inflows reflect the needs of foreign investors – which is for safe, high yields in countries with strong property rights. Americans are happy to “borrow” that money and re-invest it in higher risk projects, mostly overseas. Greenspan’s role has been to maintain the stability of the US financial system in a “mopping up” fashion and preserve that role of the global investment bank. That is the legacy to be preserved. Equity bears/Bond bulls and cataclysm forecasters hate him for proving them consistently wrong (and not following their beloved Taylor rule). I presume that they would hate it if Bernanke were appointed, with his ridiculous ideas on a global savings glut and a complete disregard for their own brilliant analysis. Ironically many of them were arguing that AG was too hawkish last year (based on their own US consumer obsession and perhaps need to be bullish on bonds) And AG has been more than critical of all administrations and their fiscal incontinence.

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