Clinton Proposes, Greenspan Disposes

Treasury Secretary Robert Rubin is a judicious man. Yesterday, after President Clinton’s speech to the Council of Foreign Relations on global economic turmoil, a speech in which Clinton said the U.S. needed to work with Japan and Europe to “spur growth,” Rubin insisted that the president was not asking Fed chairman Alan Greenspan for an interest rate cut. That would represent the exertion of political pressure on the Fed, after all, and we all know that markets don’t like that.

When you consider, though, that Rubin also said that he thought there should be no tax cuts and no spending increases until the problems with Social Security were resolved, it’s hard to see what else Clinton might have meant. If you’re not using fiscal policy to stimulate growth, monetary policy is the only other real option. So while Rubin wasn’t exactly saying “Shocked, shocked I am that you think we’re pushing the Fed,” it’s safe to say that Alan Greenspan knows what the Clinton Administration would like.

Whether that really matters to Greenspan is another matter entirely, though. When presidents in the past have tried to push the Fed into a rate cut (I’m not sure any president has ever pushed for a rate hike), the fact that the Fed chairman serves at the president’s discretion has always been implicit. But Alan Greenspan doesn’t serve at Clinton’s discretion. If anything, it’s the other way around. And in that sense, Rubin’s caution wasn’t really all that necessary. There isn’t a market in the world that’s going to be rattled by the possibility of Greenspan succumbing to White House pressure, because the possibility simply doesn’t exist.

It’s hardly a coincidence that Clinton’s speech followed Greenspan’s comments a week ago hinting that the Fed was now closer to easing rates than tightening. The Fed chair’s public assertion that the global crisis would eventually erode domestic prosperity was the precondition for Clinton’s speech, which amounted to a plea for a coordinated global rate cut. As it has for most of this administration, the Fed–in association with Treasury–leads, and the White House follows.

At this moment in particular, of course, that’s not really a bad thing. Watching the ovation that the CFR gave Rubin yesterday (in contrast to the let’s-sit-on-our-hands reception Clinton’s generally strong speech got), it was hard to resist thinking that we’d be in a global depression if Rubin and Greenspan were not in office. That’s probably not true, but then again, it may be. Markets in the end are all about confidence. They’re a daily tightrope act representing a statement of faith in the future. And a great deal of that faith in recent years has been a faith that, in the end, Greenspan and Rubin will bail us out. If they’re not panicking, then things will be okay. Clinton’s speech yesterday was not a sign that anyone is panicking. But it, like Greenspan’s speech at Berkeley, was a sign that smiling through the apocalypse isn’t really an option anymore.