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Strategies & Market Trends : Waiting for the big Kahuna
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To: IQBAL LATIF who wrote (6044)10/8/1997 3:55:00 PM
From: Tommaso   of 94695
 
Maybe somebody famous said this--in any case someone--maybe a politician, back in the 1950s said: "We don't want inflation and we don't want deflation. I guess what we want is flation."

The actions of the Federal Reserve are not consistent with what Greenspan says. This is not necessarily bad. He keeps talking as if there is an inflation threat and as if simultaneously there's a threat of stock market collapse. At the same time, monetary growth is increasing.

I think he would like to see a gentle deflation of equity prices and stability in wages and prices. But the fed has not yet done anything definite to discourage stock speculation or cut down on wild lending policies. They have the power, but aren't using it. Whether this is the best course is not clear. I think they should have raised margin rates and told brokers to inquire about the sources of funds, and that they should have done it two years ago.

My own belief is that deflation is the big threat--an overproduction of goods, except for oil and gas energy, which is a finite and wasting resource. A stock market collapse would add a lot to the deflation, by discouraging spending.

You put everything together, though, and it is too complicated to understand. Everyone just has to figure out his own place and act according to the opportunities and limitations.
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