Newspaper article St Louis Post-Dispatch (MO)

Greenspan Trying to Deflate Market Bubble

Newspaper article St Louis Post-Dispatch (MO)

Greenspan Trying to Deflate Market Bubble

Article excerpt

Alan Greenspan does not want the stock market to go higher and he's prepared to take whatever action is necessary to keep from going down in history as the guy who allowed another big stock market crash.

Last week the Federal Reserve Board raised its federal funds rate by a quarter point to 5.50 percent. There will be another increase in May and perhaps another during the summer. That will happen if Wall Street and small investors continue to act irrationally and pump more air into the stock market bubble.

The interest rate hike was not about inflation in the common way it is talked about on Wall Street and on street corners. This isn't about the price of oil rising, or a can of peas going higher. Price inflation is moderate right now and that alone would not have prompted the Federal Reserve to push rates higher and jeopardize economic growth. Greenspan raised interest rates because he is concerned about ASSET inflation. In other words, Alan Greenspan, a student of the 1929 crash and the resulting depression, is worried that investors will cash in their paper profits on Wall Street and go out and buy so many things that real world prices will rise uncontrollably. And once this inflation genie is let out of the market, there isn't much Washington will be able to do except raise interest rates to onerous levels and jeopardize the long-term health of the U.S. economy. This is the first time in two years that the Fed has raised interest rates. But this is the second straight time rates were boosted not because of ordinary inflation but because of asset inflation. More than two years ago the Federal Reserve Open Market Committee started worrying about excessive stock prices. Soon after that meeting Greenspan sent his governors out to try to calm Wall Street down. Two Fed governors took the unprecedented step of saying they were worried about a stock market "bubble." Just using that word was so far out of step with normal Fed policy that it showed how concerned Greenspan and the Fed were about the stock market. …

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