Alan Greenspan, the longest-serving chairman of the U.S. Federal Reserve (Fed) from 1987 to 2006, passed away at the age of 100, leaving behind a global economy built on perpetual debt and the expectation of constant government bailouts.
The man who began as a staunch advocate of the free market ended up transforming central banks into the system’s ultimate risk insurers, giving rise to the infamous “Greenspan Put.”
His strategy, based on the belief that the Fed would always intervene to stem market declines, radically changed the world, encouraging excessive risk-taking, leverage, and the creation of bubbles.
The Turnaround
Greenspan’s career began in 1987, when he took the helm of the Fed following a nomination by Ronald Reagan. Influenced by the philosopher Ayn Rand and her views on economic freedom, he noticed early on the dramatic rise in international financial flows, particularly Arab petrodollars.
Realizing that these flows were three to four times higher than international trade in goods and services, he recognized the financial market as a rapid generator of wealth that did not require fixed investments or labor. This discovery overturned traditional economic theory and became the leading driver of growth in his era.
The Limits
As a central banker, he sought from 1990 onward to promote a self-regulating market on a global scale, while downplaying the ideological influence of statism. His faith in self-regulation was severely tested by the 2008 crisis, when he himself admitted that he had fallen victim to “shock and distrust,” discovering the clear limits of his model.
Before his tenure, debt was merely a tool, and the markets were concerned about recession. After Greenspan, debt became the dominant economic model, and investors grew accustomed to the idea of permanent bank bailouts.
A New Era
This “Credit Culture” created a world of cheap capital, inflated assets, and a constant need for liquidity with every new crisis. According to economic analyses, this ceaseless pursuit of liquidity and the need to manage it have even led to the emergence of Artificial Intelligence, which now serves as the new source for crisis management.
Within this new, fragile environment, cryptocurrencies emerge as yet another massive threat to the traditional monetary order, sealing the fate of a world that Greenspan changed forever, but which he is no longer here to witness.