Fed nominee says he would keep politics out of policy

Alan Greenspan, the President's nominee to replace Paul Volcker as chairman of the Federal Reserve Board, vows he will remain independent. In confirmation hearings yesterday before the Senate Banking Committee, Mr. Greenspan said if politicians try unduly to influence him, ``obviously I would reject it.''

Mr. Volcker, whose term expires Aug. 6, is widely acknowledged as the central bankers' central banker.

There were no major surprises in the morning session of the hearings. Greenspan endorsed a ``stable'' money supply but hedged his comments, noting there are times when aberrations are in order. He avoided discussing how he would react to a recession, noting that each recession is different.

Greenspan stressed his reliance on markets as opposed to government interference, and he endorsed attempts to get the federal budget deficit under control. But he does not give his blessing to tax increases, because Congress has a tendency to spend revenues as it gets them, he noted. Instead he endorses budget cutting.

``Any deficit reduction politically feasible is economically sound,'' he said.

The senators viewed Greenspan's comments favorably. There are no doubts he will be approved by the Senate committee, even though some of its members are unhappy that President Reagan will now have appointed all seven Federal Reserve Board members.

Sen. William Proxmire (D) of Wisconsin reminded Greenspan of the pressures he will face from the President and Congress.

``Are you the man who can say no to the President and Congress?'' Senator Proxmire asked.

Proxmire reminded Greenspan that when the nominee was chairman of President Ford's Council of Economic Advisers, Greenspan's forecasting record was not very good. Replied Greenspan: ``There is a considerable difference between forecasting in and out of the administration.''

In his morning testimony, Greenspan said:

He did not favor the creation of ``superbanks'' to compete against the giant Japanese banks. Greenspan said small, local banks (those with assets of $100 million to $200 million) seem to be more efficient. But he added, he would not inhibit large international banks that feel they need more capital and size to compete.

The third-world debt situation is improving. Greenspan endorsed the Baker Plan, which entails a case-by-case examination of third-world debt, continued loans by commercial banks, and economic reform by the debtor nations.

He says progress has been made and some countries are returning to the debt markets, where banks have started lending again.

The nominee called the projections of a higher federal budget deficit for fiscal 1988 ``a very dangerous signal.'' But he said slight changes in the economic forecast could change the prospects. Without giving the Senate specific recommendations, he said long-term government debt should be reduced to 1 percent of gross national product (it is currently much higher).

If the dollar were to go lower, he said, it would create more problems than it would solve. Currently, he said, ``we've run into a period of stability.'' Although the trade deficit is not improving, Greenspan said foreign profit margins are so low that import prices will rise without the dollar weakening in value. Thus, the trade deficit will improve soon.

The deterioration in the farm banking sector is slowing down dramatically. Greenspan said land prices are starting up, indicating improvement is on the way.

The increased level of corporate debt concerns the prospective Fed chairman, who said the current high level leaves the United States in a vulnerable position.

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