alan greenspan : challenges for monetary policymakers remarks by alan greenspan, chairman of the board of governors of the us federal reserve system, at the 18th annual monetary conference, “ monetary policy in the new economy ”, at the cato institute, in washington dc, on 19 october 2000. * * * for the past two decades, central bankers have largely been successful at subduing the inflationary pressures that threatened to upend market - oriented economic systems a generation ago. the federal reserve, during this period, has squeezed out an inflationary excess of liquidity. in europe, tolerance for inflation has declined dramatically, and a commitment to price stability - long the hallmark of bundesbank policy - has gained widespread acceptance. in the past five years or so, two new trends have greatly assisted this process in the united states. one has been the serendipitous emergence of a once - or twice - in - a - century surge in technology. without the accompanying boost to productivity, our progress toward price stability might well have been marked by the social pressures that arose in many previous episodes of disinflation both here and abroad. the other trend was the growing political commitment to address an outsized federal budget deficit that was absorbing an inordinate share of our national saving. that change in our political environment - accompanied by the faster pace of technology - driven growth - has resulted in a sharp reduction in the unified budget deficit and, more recently, the emergence of a significant surplus. this, in turn, has helped fill the pool of saving that has fed productivity - enhancing and cost - reducing capital formation. a number of elements came together to make this economic configuration possible. the essential ingredient was the public support that developed as the growth - inhibiting consequences of the inflation of the 1970s became manifest. without this public recognition and support, it would have been difficult to establish the stable macroeconomic foundation upon which the private sector has built so productively in recent years. by now, the story of the boom in information technology is well known, and nearly everyone perceives that the resulting more rapid growth of labor productivity is at least partly enduring. capital deepening has surged during the past seven years, and innovations, synergies and networking effects have boosted significantly the growth of multifactor productivity. with output per hour having accelerated, cost pressures have been patently contained. for the most part, the federal reserve generally recognized these changing fundamentals and calibrated american monetary policy accordingly.

alan greenspan : the september 11 tragedy and the response of the financial industry remarks by mr alan greenspan, chairman of the board of governors of the us federal reserve system, at the american bankers associationa€™s virtual annual convention ( taped statement ), 23 october 2001. * * * i am pleased to speak once again to an american bankers association convention. this conference was rescheduled in respect for the loss of our colleagues and fellow citizens in the tragedy of september 11. but the fact that the conference is going forward in cyberspace is a testimony to american perseverance, to our technology, and to our flexibility. it is a metaphor for the ability of our economy to circumvent difficulties and innovate around obstacles and - - most of all - - for our decentralized and diversified economic structure. our financial system has exactly such a structure. it still has thousands of banks, with hundreds of foreign competitors, including some of the largest banks in the world. in addition, market developments, regulatory relief, and, most recently, legislative reform have ensured that the banks, the insurance companies, the securities firms, the finance companies, and the host of other participants, from pension funds to hedge funds and from trusts to mutual funds, are all, in effect, in each other's business. and this listing does not even take into account a capital market where lenders and borrowers deal directly and where increasingly the instruments and risks originated by financial intermediaries come to rest. these activities could be done much more efficiently in a technology sense by far fewer entities, but our seemingly crazy quilt structure creates a different kind of efficiency - - one that emphasizes constant cost minimization, innovation, and flexibility. and that is exactly what we saw a couple of weeks ago, when literally within hours of the attack on the world trade center - - with many of the participants still grieving and with the loss of extraordinary personnel and resources - - our financial system was finding ways to return to operation. some examples will clarify this creativity of our system. with borrowers and lenders uncertain whether the financial markets were open and with communications among issuers, their banks, and the settlement system impaired, there were difficulties in rolling over maturing commercial paper. the resulting shortfalls in the coverage of billions of dollars of maturing paper were managed by rolling fails into the next day's settlement or by drawing on bank lines, causing bank assets to balloon for a few days. similarly