Allan,
a <snip> from the Sy Harding piece sounds like a post I made on this thread just a couple of weeks ago:
<<<Instead of raising interest rates further, hitting the wrong targets, the Fed should simply raise margin
requirements. By doing so it would target the actual bubble in the stock market; the one hundred or so
extremely overpriced hi-tech, internet, and biotech stocks, which account for much of the margin debt, the
day-traders and other short term speculators who primarily use margin debt to push those stocks up, and
the image of a still strong stock market that creates much of the false wealth effect for consumers that the
Fed worries about.
The result should be a cooling off of consumer spending, and the desired slowing of the economy. Yet, it
would have much less risk of creating a recession than targeting the entire economy with a continuing
stream of interest rate hikes. And it would go a long way toward letting some of the air out of the
dangerous bubble in the hi-tech, internet, and biotech stocks without necessarily busting the rest of the
stock market, in which there is not a bubble.>>
If the requirements were raised slowly and deliberately, it would put some pressure on both the market and the economy, but I don't think [emphasize that word!] it would kill everything the way raising interest rates eventually will. Say, if they announced that they would raise margin rates by 5% each month for the next 6 months, giving a one month period where people could adjust their portfolios at leisure. Yes, high fliers would go down, especially at first in anticipation, but eventually stocks would get back to where they deserve to be, and the whole economy wouldn't be killed.
Well, I'm not really sure if the above is true or not, but I throw it out to see if anything seems to stick.
Sam |
