Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession Read Online Free PDF Page B

speculation and inflation. During the Eisenhower years, Martin’s quest was largely a success. Between 1952 and 1962, the monetary base of the Federal Reserve Bank remained unchanged. 8 The Fed accommodated the rising demand in credit by reducing the reserve requirements of Federal Reserve member banks. 9 A lower reserve base allows banks to lend more, although it compromises bank stability. The Fed had been cutting reserve requirements since its formation and would continue to do so through Alan Greenspan’s reign.
    Americans wanted to borrow, but a problem was developing. The United States was spending more abroad than foreigners were buying from the United States. The deficit was paid for in gold, thus redistributing $1.7 billion of America’s gold reserves to foreign central banks between 1950 and 1957. In 1958, foreigners bought $2.3 billion of gold from U.S. reserves (selling the dollars from the American purchases overseas). At this rate, the United States would lose all its unrestricted gold in four years; yet, in 1944, it had committed itself to honoring foreign government exchange requests. 10
    6 Mayer, The Fed , p. 165.
7 Charles A. Coombs, The Arena of International Finance (New York: Wiley-Interscience,
    1976), p. 71.
8 Richard Timberlake, Monetary Policy in the United States : An Intellectual and Institu
tional History (Chicago: University of Chicago Press, 1993), Table 21.1, p. 328. 9 Ibid., Table 21.2, p. 330. Reserve requirements of “central reserve city banks” as a percentage of deposits were lowered from 26 percent in 1948 to 16½ percent by 1960. 10 Bremner, Chairman of the Fed , pp. 144–145.
    The Bretton Woods Conference of 1944 instituted the “gold exchange standard.” The dollar served as monetary backstop for the world’s currencies. The dollar would remain pegged to gold at the value of 35 to the ounce. Balance would be preserved by the legal authority of foreign central banks. They could redeem their dollars for gold at that rate.
    One reason that Americans were spending more was that they had spent so little. GIs were marrying and needed a place to live. Only 326,000 new houses were built in 1945. By 1950, nearly two million houses were built. 11 The average size of new houses constructed in 1950 was 953 square feet, and only one-third had more than two bedrooms. 12 Government financing was instrumental. Loans were generally courtesy of Federal Housing Administration and GI Bill guarantees. The first program was a legacy of the Roosevelt administration; the latter, of the nation’s support for soldiers. 13
    Credit flowed more readily, and material possessions were bought and discarded more rapidly. The New York Times captured the evolution on August 25, 1957: “[T]imes have changed. Owning a house is no longer so important as being able to use it while paying for it.” 14 Economists classify people as “consumers.” The word fit changing habits. Americans were growing more detached from ownership of property and more attached to the acquisition of things, many of which were disposable. The American temperament of the time was summed up by an economic historian of the Eisenhower years: “Although the standard of living steadily rose through the 1950s, people were not satisfied, but wanted more.” 15
    New York: A Leading Economic Indicator
    Alan Greenspan had the advantage of working in New York. Many of the changes in America over the next 60 years were first evident in his hometown. In 1946, New York was still the “nation’s largest manufacturing town.” 16 Between 1946 and 1951, five-sixths of the new factories “were built beyond the limits of the major metropolitan districts existing at the end of World War II.” 17
    11 Sobel, The Pursuit of Wealth , p. 280.
12 National Association of Homebuilders; www.nahb.org; Source: U.S. Census Bureau, Table C-25.
13 Sobel, The Pursuit of Wealth , p. 280.
14 John Lukacs, Outgrowing Democracy: A History of the United States in the