The Man Who Knew: The Life and Times of Alan Greenspan — Eighteen: “YOU’RE THE BIG GURU”

1. 1. Iraqi forces invaded Kuwait on August 2, 1990, triggering a military crisis that spiked oil prices nearly 12% on the day of invasion and 30% more over two weeks.
2. 2. Greenspan argued at the August 21, 1990 FOMC meeting that the odds of war in the Middle East were 50-50, using his special information to resist cutting interest rates.
3. 3. Despite the economy entering recession in July 1990, Greenspan won unanimous FOMC support to keep interest rates unchanged, prioritizing inflation fighting over growth.
4. 4. By October 1990, Greenspan pivoted and proposed two modest rate cuts of 25 basis points each, linking them to congressional passage of a deficit-reduction budget deal.
5. 5. The U.S. experienced a balance-sheet recession in 1990-91, where high debt rather than high interest rates caused the slowdown, as overextended banks and consumers disciplined themselves.
6. 6. In January 1991, Senator Alfonse D'Amato publicly excoriated Greenspan for being too worried about inflation during a recession, calling him 'the big guru' and demanding lower rates.
7. 7. The Treasury proposed consolidating bank regulation into a new Federal Banking Agency under its control, aiming to seize the Fed's supervisory authority over large bank-holding companies.
8. 8. Greenspan's private lobbying and public testimony successfully preserved the Fed's supervisory powers, with the Treasury's reform plan scaled back to leave the Fed as a junior partner.
9. 9. Greenspan underestimated the severity of the balance-sheet recession, believing an inventory-driven recovery would materialize, but unemployment rose to 7% by October 1991.
10. 10. By the 1992 election, Greenspan had cut the federal funds rate to 3%, but President George H.W. Bush blamed insufficient rate cuts for his defeat, saying Greenspan 'disappointed' him.