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Does it matter that asset prices have gone into the stratosphere if it's not
having a perverse effect on the real economy?
If you do think it is having a perverse effect on the real economy, where is it?
The expected effect would be an exceptional increase in demand, which in the
short run would translate into higher prices. It hasn't happened. And that is
why AG hasn't done much.
Regards
DanG
James Taylor wrote:
> No signs of inflation ? Maybe if you are not looking or paying attention.
> Look at asset prices (real estate & equities) have gone into the
> stratosphere. His actions of lax rates and wreckless monetary policy was
> his solution to the banking crisis (caused by irresponsible lending
> practices). Now his back is to the wall and he knows this market is out of
> control. The number of bank failures and economic hardship (the seeds that
> he has sown) that will blanket this land when the bubble bursts will make
> the small amount of defaults he avoided pale in comparison.
>
> ----- Original Message -----
> From: Daniel Goncharoff <Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx>
> To: <jptaylor@xxxxxxxxxxxxxxx>
> Cc: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Wednesday, March 08, 2000 8:37 AM
> Subject: Re: [RT] Alan Greenscam, Public ENEMY Number ONE
>
> > 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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