[Opinion] Greenspan’s ‘Fedspeak’

U.S. Federal Reserve Bank Chairman Alan Greenspan’s historic speech on December 5, 1996 was remembered as being “heavy, dull, and long” by some observers.

They probably were surprised by the headlines in the next morning’s papers that read, “Fed Chairman Questions Irrational Exuberance in Securities Markets,” and probably failed to catch Greenspan’s warning of a stock market bubble, which triggered transactions worth trillions of dollars.

If George Orwell’s 1984 featured “Newspeak,” Greenspan has his “Fedspeak”: roundabout statements that puzzle listeners. Bloomberg reported how a New York Times report on Greenspan’s speech read, “Doubts Voiced by Greenspan on a Rate Cut,” while The Washington Post’s take on the same issue read, “Greenspan Hints Fed May Cut Interest Rates.”

“Since becoming a central banker, I have learned to mumble with great incoherence. If I turn out to be particularly clear, you’ve probably misunderstood what I said,” said Greenspan.

The language adopted by Greenspan, referred to by some as the “president of the world economy,” is open to multiple interpretations. It allows one to effectively guide financial markets by reducing market overreactions and widening possible policy measures. Depending on its level of obscurity, his impact on the economic front can change accordingly.

Though nobody ever completely understood what Greenspan was saying, the market still believed in him. His strength lay in his determination to block inflation. That the dollar remains strong despite simultaneous American budget and trade deficits reflects the trust the public has in Greenspan.

Greenspan’s heir-apparent, Ben Bernanke, will likely continue and build on his policies, but could adopt a more lucid way of speech. His language, whether clear or not, should deliver a coherent and firm message to the market and its participants.

The governor of the Bank of Korea once caused the loss of a trillion won after making rash remarks, such as, “Korea’s foreign exchange reserve will not increase any further.”

People are always under the spotlight for making certain remarks.

Kim Sun-deok, Editorial Writer, yuri@donga.com