Currencies

[thepennyking]

Greenspan May Not Go On

WHITE HOUSE MAY SEE GREENSPAN AS LIABILITY FOR ELECTION

By JOHN CRUDELE

March 30, 2004 -- WHO'S going to be the next one to hear the immortal words, "You're fired"? It just might be Alan Greenspan.

Granted, I'm a bit early on this conjecture. The Federal Reserve chairman's term doesn't expire until June, and the last word from the Bush Administration is that he can stay on.

But a few weeks ago, I started hearing a story from a very well-connected Washington insider that the White House is peeved at Greenspan for some stuff that appeared in "The Price of Loyalty," the best-selling book by former Bush Treasury Secretary Paul O'Neill.

As I said in a column in late January, at one point O'Neill has Greenspan lamenting that "capitalism is not working" because of corporate corruption. And there are stories in the book about secret alliances between O'Neill and Greenspan.

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etc etc etc

But what is really tweaking the administration's cheek is the fact that some of the other information in the book could only have come from Greenspan. And Greenspan and the now-despised O'Neill were, and are, tight.

"O'Neill is very friendly with Greenspan," says this source, who has worked in previous Republican administrations. "And the White House is [not happy with]" the Fed chairman.

Disloyalty is a sin in this White House. And being a friend to the administration's enemy makes you the enemy.

If that was all, the administration might get over it and allow the 78-year-old to serve another four-year term - although I personally don't know why anyone would want to stay in a high-pressure job until the age of 82.

But there is also a very tricky economy that is likely to cause Greenspan to butt heads with the administration over the next few months.

The White House, of course, wants what every incumbent administration wants - a Federal Reserve that will roll over and play dead.

If interest rates could go any lower, that's what the Bush Administration would want. But since they can't, the next best thing would be for Greenspan not to do anything.

But therein lies the problem.

Even though the economy isn't exactly booming, prices - thanks only in part to a big jump in energy costs - are rising enough so that the Fed will soon have to start paying lip service to inflation.

The Fed won't raise interest rates in a presidential election year unless some global crisis forces its hand. But the words about inflation that Greenspan will have to utter won't sit well with the White House.

I wrote in this column a few weeks ago that private inflation data would soon cause Greenspan to worry. And just last week, Fed Governor William Poole said in a speech that the risk of inflation has increased - a shocking deviation from the Fed's script.

This is typical of how the Fed works.

Next you will hear other Fed representatives bringing up the issue of inflation and then, finally, Greenspan himself. And if he weighs in, he'll probably be out.

*

Don't get too excited about the big rally in stock prices yesterday and last Thursday.

It's the end of the quarter and professionals - when they can - jack up stock prices so they can report to customers like you how well they are investing your money.

Some pros have to allow three days for the paperwork to clear for trades to be counted in the current quarter. That's why these rallies start before the last day of the month.

The real test will be when April 1 arrives. Then we'll see if there is enough conviction to keep the rally going - especially since this Friday's employment figures could prove a major problem.

The December rally that this column expected gave way to weakness in the early part of 2004, which I also expected.

And with all the problems in the U.S. economy and world politics, there's no reason to think that an already overpriced stock market can continue a heroic rise.

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