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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Maurice Winn who wrote (13746)1/20/2002 11:46:29 PM
From: Don Lloyd  Read Replies (1) of 74559
 
Maurice -

...I agree, if we want to extend the definition of inflation further than the consumer price index. That's why, for years, I've thought that Uncle Al will print flat out, using the consumer price index inflation rate as the basis for the printing. While prices are dropping, he'll be printing. My guess was that this would cause a rapid increase in the share price indices. So far, apart from the bubble, which appeared as an irrationally exuberant blip on the decades-long big picture, that has been the case.

When the Fed depresses interest rates below their normal level, it is entirely rational to bid up the present prices of all products which provide at least some of their utility in the future.

If a refrigerator has a service life of ten years, the discounted present utility of the tenth year of service rises as the market interest rate falls, up to the point that it would match the utility of the current year of service if the interest rate was zero.

Regards, Don
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