In the pantheon of finance, few gods rank higher than Alan Greenspan. Worshipped by Americans from Wall Street to Main Street, the chairman of the Federal Reserve is credited with saving the world from economic disaster not once but twice.

On the first occasion, two months into the job, he slashed U.S. interest rates in the wake of the 1987 stock-market crash and kept the ball rolling. On the second, he won plaudits for averting a global depression in 1998 by bailing out Long Term Capital Management, the hedge fund, and injecting liquidity into financial markets.It is little wonder that the American public has faith in him steering the overheated U.S. economy to a soft landing this time round.

Yet Greenspan is arguably as much villain as hero in the story of economic ''success.''

Even allowing for the pickup in productivity associated with the adoption of new technology, U.S. growth is powering ahead at a rate that far exceeds the economy's potential. Notwithstanding recent falls, stock prices remain detached from reality, encouraging a casino mentality among consumers and businesses.

A paper by Phillips & Drew's Bill Martin highlights the scale of excess. ''America's New Era Revisited,'' an update of his earlier work with Wynne Godley, argues that blind faith in the economy's invincibility and inflated stock prices have fueled an orgy of borrowing that has taken the private sector to an unprecedented level of debt.

Private net saving in most of the post-war period has averaged about 2.5 percent of gross domestic product - but in the second half of the 1990s it dived to nearly -5 percent.

The willingness of U.S. consumers and businesses to borrow has, in turn, supported the stock market. This could trigger a self-feeding reversal: Private net saving starts to rise, which depresses growth, causes a stock-market fall and triggers a further jump in saving - the paradox of thrift, as John Maynard Keynes called it.

Martin has carried out a number of simulations of what could happen when U.S. consumers and businesses decide to retrench. The results make grim reading.

Under the worst-case scenario - in which the net saving rate reverses sharply and rises above normal - growth collapses and stagnates over five years, sending unemployment above 10 percent.

Even a return of net saving to its normal level sees growth slow to 0.7 percent a year for five years and unemployment up to 9.4 percent by the end of the period. This would have unpleasant consequences for the rest of the world, since lower import demand in America means lower exports from elsewhere.

Greenspan must assume his share of the blame for the precarious situation the global economy in now in. They have occurred on his watch.

The argument in his defense is that in the autumn of 1998 there was nothing else he could have done. Faced with a meltdown in financial markets, standing back and letting LTCM fail while leaving monetary policy on hold could have unleashed economic devastation.

That may be so. Confidence was certainly fragile. But Greenspan could have acted more promptly to tighten credit conditions once the danger of depression had passed. Now he appears to be playing catch-up with the markets rather than staying, as all central bankers should, ahead of the game.

So what can he do to ensure a soft landing for the U.S. economy? Some argue that a sharp rise in interest rates is needed to jolt people to their senses - but the danger is that this could precipitate the very crash Greenspan is trying to avoid. A continuation of the softly, softly approach, raising rates in quarter-point increments, therefore seems appropriate.

''Faith and Magic: Investor Beliefs and Government Neutrality'' - a new paper by Henry T.C. Hu at the University of Texas - sets out some extra steps Greenspan could take to shake the American public out of its myopia.

Hu argues that the Fed is guilty of helping to establish a ''stock-based investor religion,'' and thereby distorting the market demand for stocks. The price of Greenspan's success in preventing disaster is that it has become natural for naive investors to think that share prices cannot collapse or that, if they do, investors will somehow be insulated.

In particular, the Fed's rescue of LTCM - ''well-connected financial speculators'' deemed too big to fail - has fostered socially destructive illusions among investors. These could lead to the federal government being forced to provide a safety net for millions of ordinary stock market investors who would be deemed too small to fail.

Hu argues that we are now in a world where Greenspan's presence means disasters simply do not happen. He says investor optimism needs to be tempered with genuine fear that crashes, while extremely rare, can still happen and that the Fed may not ride to the rescue.

Since Greenspan's famous ''irrational exuberance'' speech in December 1996 the Dow has climbed more than 60 percent. Having failed to ''jawbone down'' the market, the Fed should now declare that it will not provide liquidity for mutual funds that run into redemption problems. This would force investors to rethink the existence of a federal safety net.

Second, Hu suggests that the Fed should forswear intervening directly in equities or equity derivatives. Investors would be forced to redo their sums to take account of the extra risk involved in piling into equities.

Such a reassessment is clearly needed. Although recent wobbles indicate the market may have entered a new bear phase, valuations are still stretched. Martin reckons that trend growth of the U.S. economy would have to be close to 10 percent and inflation zero to justify Wall Street's current level.

Greenspan's reputation is still high. His achievements have earned a place on the cover of Time, and a Thai newspaper characterized him as a demi-god in the aftermath of the Asian crisis.

After the U.S. president, he is arguably the most powerful person on the planet, whose words and gestures are watched closely for clues to his thinking. His status is truly superhuman.

But even his considerable powers may not be enough to get him out of the mess he is now in - one that he has in part created.