Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: tradermike_1999 who wrote (9669)	9/18/2001 1:37:29 AM
From: FR1	Read Replies (2) of 74559

Each collapse came from a speculative bubble that burst and each bubble came as a result of excess monetary stimulus that fueled reckless investment activity. I think the last collapse came completely from AG. He decided to raise rates up to 6.5% and sit on it until he saw hundreds of thousands of pink slips. He did all this not because we had out of control inflation but because he had some theoretical hunches and academic models. Were stocks overvalued? Of course they were. Some of them had a PE in the thousands. But if you left the market alone it would have solved the problem by itself. Look at AMZN as an example. Before the rates started really going up they went through their whole cycle. AMZN appeared on the scene and had a great story for their stock. People bought it and it went up 1,200% in a year. Then people began to see they were not delivering. So the stock went way down and leveled off. The same thing would have happened to all the other inflated stocks. By interfering in the market with high interest rates AG not only wiped out the inflated stocks (which would have come down anyhow) but he also wiped out everybody else. I summary, I think it is the fault of congress. It is the duty of congress to define the role of the FED and they refuse to tell the FED they are there to act if there is an emergency. In other words the market should be free to take its own direction and the FED is there if a crisis (world war, etc) comes up. The FED thinks it is their duty to be proactive, guess where the economy is going, and push rates up and down depending on their current theories. Sadily, the FED even now has not learned anything. I heard AG mention how they need to add the appreciation of personal real estate into their economic modeling in the future.

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