Morgan Stanley is looking ahead to the Greenspan replacement, and suggests that given Bush's track record on appointees, we can expect a candidate who is familiar and loyal to Bush, and pro-growth.
But as Morgan Stanley then goes on to say, that could be the last thing we need:
"This could well pose a serious problem for US financial markets. With America's external financing critically dependent on the foreign confidence factor, any doubts over central bank independence will not go over well. That's especially the case for a US economy beset with record imbalances, a potential inflation scare, and bubble-like conditions in asset markets. Foreign investors have been extraordinarily generous in the terms they have offered for funding America's external deficit.
In part, that generosity may reflect the "Greenspan factor" -- the confidence that investors have in Alan Greenspan's adroit management of periodic international financial crises. With the Greenspan factor about to be taken out of the confidence equation, any fears of an "easy money" Fed could well prompt foreign investors to exact concessions in those financing terms in the form of a weaker dollar and higher real interest rates. "
Full Text here: