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Bush and Greenspan Exchanging Valentines
By Tom Raum   Associated Press
WASHINGTON — The first President Bush blamed Alan Greenspan for contributing to his 1992 defeat by failing to cut interest rates quickly enough to spur the economy. The second Bush in the White House is seeing his hand strengthened by the same Federal Reserve chairman's aggressive rate cuts and unexpected support for tax relief.

The slumping economy has accelerated a Bush-Greenspan courtship — and put them into an unusual alliance.

The Fed's half-point cut in a key short-term rate on Wednesday — its second such reduction in a month — should make it easier for Bush to press his case on Capitol Hill for an accompanying tax cut.

But Bush, who enthusiastically endorsed the Fed's surprise half-point cut on Jan. 3, was silent. Not because he did not appreciate the move — but out of what aides said was a respectful nod to the Fed's independence.

The Fed move comes less than a week after Greenspan, in a remarkable turnabout, sent a major valentine to Bush, telling a Senate committee he now believes that a deep tax cut would help stimulate an economy posting "close to zero growth."

In the past, he spurned Bush's proposed $1.6 trillion, 10-year tax cut plan, suggesting the surplus should be used to pay down the national debt instead.

The warming Bush-Greenspan relationship comes against the backdrop of a worsening economy. A consumer confidence index released on Tuesday plunged to its lowest level since 1996.

Also, more and more companies have reported disappointing growth, closing plants and idling tens of thousands of workers. Rolling blackouts and growing debt by utilities are roiling California's once-vibrant economy.

The Fed's back-to-back interest rate cuts underscore the seriousness with which Greenspan takes the economic slowdown.

A Republican economist, Greenspan was first picked for the Fed job by President Reagan in 1987 and given a further four-year term as chairman in 1992 by the elder Bush.

He later expressed regret. "I reappointed him and he disappointed me," the elder Bush said in 1998.

Greenspan was reappointed by President Clinton in 1996 and again in 2000.

During last year's presidential campaign, the younger Bush was noncommittal on whether he would reappoint the widely respected Greenspan if elected — a marked contrast to GOP rival Sen. John McCain's hearty endorsement.

"I would not only reappoint Mr. Greenspan — if Mr. Greenspan should happen to die, God forbid ... I'd prop him up and put a pair of dark glasses on him and keep him as long as we could," McCain said at one GOP debate.

But since winning the election, Bush has actively courted Greenspan.

His team gave Greenspan an early heads-up that Bush would nominate Paul O'Neill — the former head of Alcoa Aluminum and a longtime friend of Greenspan — as treasury secretary.

Bush's chief economic adviser, Lawrence Lindsey, served on the Fed under Greenspan.

Bush also intends to tap another Greenspan associate, Stanford University economist John Taylor, as chairman of the White House Council of Economic Advisers, aides said. Taylor and Greenspan worked together in the White House in 1976, when Greenspan was President Gerald Ford's top economic adviser.

Bush may also bow to a Greenspan wish and extend the term of Fed Vice Chairman Roger Ferguson, a close Greenspan ally, aides said.

Sometime Bush's courting of Greenspan has been on the exuberant side.

When the two met in December, Bush clapped a hand on Greenspan's shoulder and told reporters he was "a good man." The shy Greenspan appeared to recoil from the unexpected contact.

Bush was lavish in praising Greenspan's first half-point cut in interest rates on Jan. 3, reversing the silence-is-golden policy Clinton had followed. It was apparently not appreciated by Greenspan. Presidential utterances on Fed moves can have unintended effects on financial markets.

"Mr. Greenspan needs to make his decisions independent of what I think. I learned a pretty good lesson during the transition," Bush said on Tuesday. "That's the last time I'm going to comment about the actions that Mr. Greenspan takes."

And true to that promise, neither the White House nor the Treasury Department commented on Wednesday's Fed move.

Greenspan's detractors — and there are relatively few — suggest the nation's top banker is too sensitive to political considerations, going out of his way to try to please both Clinton and Bush. "He wants to be a player in the broader context," said Sen. Byron Dorgan, D-N.D.

Dorgan contends that the Greenspan Fed erred in waiting too long to act on interest rate cuts. "This economic slowdown is not an accident," he said. "The Federal Reserve Board increased interest rates six times since June 1999."

It's a sentiment that the older Bush might endorse — but not the son.

EDITOR'S NOTE: Tom Raum has covered Washington for The Associated Press since 1973.

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