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Your right, there is no inflation. Gas at $2 isn't inflationary, Medical
insurance up 18% isn't inflationary, housing costs up 16% to 40% depending
upon where you live isn't inflationary, Dentist visit up 25% not
inflationary, restaurant prices up 15% to 25% depending on where you are at,
(exclude McD and Wendy's for you gourmet eaters), when inflation hits are we
going to be in big trouble. Ira
Daniel Goncharoff wrote:
> It is important to understand the problem faced by Greenspan.
>
> The market goes up in an 'irrationally exuberant' way. He says he will
> take away the punch bowl as soon as he sees signs of the party getting
> out of hand, ie, when he sees inflation rise.
>
> The economy keeps growing at a healthy pace. But inflation doesn't rise.
> Instead, the increase in wealth from the stock market is reinvested, not
> spent.
>
> This leaves Greenspan with a dilemma. Does he raise interest rates
> anyway, risking stifling the economy and creating a deflationary
> environment? Or does he wait for signs of the stock market bubble
> translating into artificially higher asset prices?
>
> Obviously, he has done the latter. But inflation is not there. The
> wealth effect is much smaller than economists would have expected.
>
> The FT recently had an article saying that spending patterns of
> individuals reflect a 75% expectation of a serious market downturn.
>
> Perhaps it would have been better to assume that raising interest rates
> would not have an important economic impact. Perhaps not...
>
> Regards
> DanG
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