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Couldn't the huge rise in stock prices be seen as inflation?
Ira Tunik wrote:
> 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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