Alan Greenspan: The New Mr. Dollar

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For the immediate future, Greenspan is likely to follow Volcker's anti- inflation policies. Says Harry Kalberman, a broker at Merrill Lynch and a close Greenspan friend: "People who think he will allow inflation to come back are fooling themselves." Agrees Jerry Jasinowski, chief economist of the National Association of Manufacturers: "Philosophically, he may feel more strongly about reducing inflation than Volcker did."

Greenspan's lack of central bank experience does not bother experts like Salomon Brothers' Kaufman. Mindful of Greenspan's reputation in Republican and Wall Street circles, he says the chairman-designate "has the standing in Washington to deal forcefully with other Federal Reserve Board members."

Indeed, some Fed watchers think Greenspan may become more influential than Volcker has been, at least recently. Says Robert Hormats, a vice president of the Goldman Sachs investment firm and an economic adviser in four Administrations: "The markets have made a mistake if they think the White House may have more influence on the Fed. It will be the other way around." Hormats' reasoning: Volcker's commanding manner and banker's jargon may have been off-putting to Reagan. Greenspan, on the other hand, has a gift for rendering economic concepts in the kind of uncomplicated language beloved by the folksy President. Greenspan may try to coax Reagan, for example, to accept a tax increase in the fight to cut the federal budget deficit.

The strongest difference between Greenspan and Volcker is likely to be in the area of banking deregulation. Volcker was chary about tearing down regulatory barriers that divide U.S. commercial banks and securities houses, a distinction enshrined in the 1933 Glass-Steagall Act. Greenspan, on the other hand, is an enthusiastic deregulator. He also brings his free-market enthusiasm to the issue of Third World debt. Volcker pioneered in that area by promoting concerted action by government and international authorities, along with private banks. Greenspan is more likely to applaud such market-oriented maneuvers as swapping bank loans for equity stakes in the domestic industry of debtor countries.

More than underlining his differences with Volcker, however, Greenspan must stress his similarity in one major respect: unwillingness to be manipulated for partisan political purposes. Says John Heimann, vice chairman of Merrill Lynch Capital Markets and a former U.S. Comptroller of the Currency: "The most important thing he has to do is give the markets convincing evidence that he is free of influence from the White House." Without that evidence, foreign investment in U.S. securities, a crucial factor in underwriting the budget deficit, might well dry up. That in turn would undoubtedly lead to a vicious spiral of increased interest rates to woo back the creditors, resulting ultimately in a slowdown of economic growth and the doleful prospect of U.S. and possibly even global recession.

Greenspan, of course, is fully aware of all that. He knows that playing politics with the economy could be disastrous. Preserving financial stability during these uncertain and jittery times would have been difficult enough for Paul Volcker, and it will be doubly daunting for Alan Greenspan as he proves his mettle to anxious moneymen around the world.