Interesting article on Economygreenspun.com : LUSENET : Freedom! self reliance : One Thread
Found this on the Financial Times News site...pretty dry reading for the most part, but I found it interesting as it's rare to see any critique of Greenspan in the news.
I suppose we'd all better take our portfolios and siversify them into hard assets....HA! For me that means I breed my goats! What's it mean for you?
Hero worship may hit markets By Christopher Adams, Economics Correspondent Published: April 9 2001 19:28GMT | Last Updated: April 11 2001 04:25GMT
Alan Greenspan, the chairman of the US Federal Reserve, must lose his "superhuman" image gradually if he is to prevent a world stock market crash, according to a report warning that US share prices have further to fall.
Marcus Miller, the British economist who wrote the report, predicts the S&P 500 index of top US companies will fall further, from 1128 to 750, some 50 per cent below its peak last August.
Confidence in the 75-year-old Fed chief has begun to waver amid fears that the US economy is on the brink of a recession. Critics think he has delayed recovery by not cutting interest rates early or deeply enough. If confidence in Mr Greenspan failed, the impact could be severe. A recent poll showed 1 in 5 Americans thought he was behind strong growth.
The study, to be published on Tuesday at the Royal Economic Society's annual conference, will urge Mr Greenspan to avoid declaring that there is little he can do to stop shares sliding.
The Fed, expected by financial markets to cut interest rates further, should adopt a gradualist approach to monetary easing. Deep rate cuts would be counterproductive, fuelling a mistaken belief that the central bank will bail out investors.
"To avoid a crash and restore realistic valuations is a delicate operation," said Prof Miller. He criticised Mr Greenspan for not raising interest rates in 1996, when he spoke of "irrational exuberance" in stock markets. "He should have matched his words with action," Prof Miller said.
Investors have come to expect the Fed to take decisive action to prevent markets falling, the report says. The effect is like a put option, which protects investors against falling asset prices by guaranteeing a minimum sale value.
"Investors believe central bank intervention will succeed. So The Fed apparently provides insurance against the possibility of a market crash," Prof Miller said. "But the reality is a bubble, because the put will not exist when it comes to be exercised."
By pricing a "Greenspan put" into valuations, the report shows it is wrong to think the Fed can raise share prices. But it says a frank admission by Mr Greenspan of his limitations or a realisation by investors that he is not superhuman could cause a crash.
The report suggests a preferred scenario, where investors are gradually "brought to their senses" and the stock market bubble subsides more slowly.
-- Doreen (email@example.com), April 12, 2001
Uh huh.... I liked the story they showed on... CNN???? Greta somebody or other. About all the folks wanting apologies from their brokers etc for losing their money... I about fell off my chair laughing!
Interesting that its a British article - AND, I agree with it entirely. The idiots that invest more than they can afford to lose are going to do just that.
If interest rates go too low, we won't use banks anymore. If they go too high we won't buy things. So... where does that leave our economy??
Unfortunately, the collective governments in our world have become so co-dependent (forget about the PC term of INTERdependent!!!) that if one goes, others will follow. Investors follow blindly trying to make a quick buck. What happened the last time we suffered a world wide market fall off???
-- Sue Diederich (firstname.lastname@example.org), April 12, 2001.