Q: Every time I see Greenspan on TV I cringe as his organization tries to balance inflation, interest rates, etc (or as we know it, the economy). Why don't they just get out of it and let it balance out on it's own? I see what the "Feds" are doing as running back and forth on a teeter-totter board. When one ends starts to go too far up or down they run to the other end and try to balance it but usually overcorrect and the board starts to go too far the other way, so you have what professional pilots refer to as a pogo maneuver. (The plane is going up or down instead of level and they over correct one way and then the other causing the plane to bounce up and down). The way they correct it is to just let go of the system and let it level out on it's own. I realize that banks, businesses, investors, etc. have been responding to the "Feds" for so long but wouldn't it be better in the long run if Greenspan and his group just went away? — Steve H., Idaho
A: We think not. Governments and central banks have always tried to manage fiscal and monetary policy respectively (even if the current U.S. Congress seems to forget that that's part of its job.)
Chairman Greenspan has said that the modern financial markets — loaded as they are with derivatives and all manner of hedges and cross-market bets — regulate themselves best when the Fed keeps a light touch.
But think of the Fed more like the fire department. Sure, you don't want them tramping through your house hacking away at walls just because you burned the toast. But if the neighbor's house is burning (e.g. the 1987 stock market crash, the 1998 Asia meltdown, the collapse of Long Term Capital Management, etc.) it's nice to know there's someone there to throw water on it before it spreads to yours.