<long rant>
Mike
Congratulations on your early retirement. I think the
world lost the services of a very competent carpetologist.
I think Alan Greenspan, although a very intelligent and
powerful person, is pretty much at his wits ends here.
1. It is a widely accepted fact that rate changes take some
time (3-6 months) to take full effect. Yet he has been
expressing his frustrations that economy doesn't chill out immediately in response to his rate hikes. And, when his
past rate hikes begin to show their impact now, he may
find reason to withhold new ones (or even lower some to
counterbalance the unwarranted hikes of recent months).
2. He has been trying to combat a consumer spending boom
that is fueled by wealth using debt containment measures.
This doesn't help. If stocks were the mania, he could well
have used some other measures, such as margin requirements,
to control trading.
3. He has been ignoring the inflationary pressures on the
economy for so long. Not every one is an optionnaire but
65%+ own a house. And many surveys have shown that the
rising home equity has more to do with consumer confidence
than rising stock market (a couple from WSJ/NBC).
Now, shelter is 40% of CPI. Guess if house prices go up 50%
over 3 years, how much should CPI go up ? At least 5% pa by
housing alone. But it would have been a political suicide
to acknowledge that - Clinton would have seen to it. Too
many things are indexed on CPI. Particularly COLA for
social security. No wonder wages around here in bay area
have been rising so fast.
4. CPI should go up on other counts too. Such as taxes which
have been generally rising (the tax-freedom day keeps
shifting Christmaswards). The hourly wages are measured on
a pre-tax basis whereas consumer spending is out of post-tax
dollars.
The financial chaos are pretty much his to own. Governments
are wont to ignore reality to pursue their own agendas,
many a times to the detriment of the world, including their
own countries. (To wit, USA with Saddam, Churchill with
Hitler to name a couple.) It is unlikely that AG'll admit
to the total insanity to his methods; but we might see a
different read on him in the future.
Even though I am not an economist, I reserve my right to
be completely off my onion and be proud of it <g>
Regards
Dinesh |
