Alan Greenspan: The New Mr. Dollar

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While Volcker fished, Baker, along with Secretary of State George Shultz (himself an international economist) and Treasury Secretary Baker pondered alternatives. Greenspan's name topped their list. Second came Deputy Secretary of State John Whitehead, 65, a well-known expert on international monetary matters; before joining the State Department he was a highly successful investment banker at the Manhattan-based firm of Goldman Sachs. Third on the list was Beryl Sprinkel, chairman of the Council of Economic Advisers. Shultz and James Baker discreetly sounded out the two top choices about their availability for the Fed job.

After returning to work, Volcker asked for an audience with Ronald Reagan. Both the Treasury Secretary and the chief of staff were in attendance as Volcker sat down last Monday afternoon with the President in his yellow-and- white sitting room on the second floor of the White House. Related Chief of Staff Baker afterward: "The President went into that meeting prepared to ask him to reconsider."

Reagan began briskly. Said he: "I understand from Howard that you don't want to be reappointed." When Volcker concurred, the President started to ask the Fed chairman to think yet again. But he was interrupted by Volcker, who pulled his letter of resignation from a pocket and began to summarize its contents. As President Reagan heard that some of Volcker's reasons were personal, he declared, "I've got a policy that I never try to talk anyone out of leaving Government for personal reasons." All four men then discussed Volcker's successor and, with the Fed chairman's approval, quickly settled on Greenspan.

Informing the economist of the decision took a little longer. When tracked down by the White House switchboard, Greenspan was in his Manhattan doctor's office and unreachable for 20 minutes. Commented Reagan, who has seen all too many physicians during his two terms: "There's no telling what they're doing to that man." Eventually Greenspan emerged. Would he accept the job? The immediate answer was yes.

As markets adjusted to the shock of Volcker's impending absence, a new Fed- watching game had already begun. Every recent utterance by Greenspan was being scanned for inklings of his current views on inflation, interest rates and the dollar's value. By and large, Greenspan kept mum in anticipation of his Senate confirmation hearings in mid-July.

Even so, some observers tried to make much of the fact that two weeks ago in Chicago Greenspan had remarked that "over the long run" the value of the battered dollar would go "significantly lower." At last week's press conference announcing his appointment, however, he noted cautiously that there was "evidence" that the dollar's fall had bottomed out. Observed Japanese Central Banker Ohta: "Mr. Greenspan made his remark about ((the falling dollar)) when he was an economist, not when he was chairman-designate. So we do not have any concern about it." In his new vein of bankerly circumspection, Greenspan also declared that the "economy, at the moment, looks reasonably strong and hopefully will continue so for the indefinite future."