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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Tradelite who wrote (3589)7/25/2002 8:52:29 PM
From: Elroy JetsonRead Replies (2) of 306849
 
Greenspan doesn't publicly see a bubble in real estate, but then he didn't see a bubble in the stock market either... at least in public. In private he did in 1996. I think I know what he might be discussing in private today.

Note Greenspan's comments from the "Transcript of Federal Open Market Committee Meeting of September 24, 1996"

"I recognize that there is a stock market bubble problem at this point, and I agree with Governor Lindsey that this is a problem that we should keep an eye on. We have very great difficulty in monetary policy when we confront stock market bubbles. That is because, to the extent that we are successful in keeping product price inflation down, history tells us that price-earnings ratios under those conditions go through the roof. What is really needed to keep stock market bubbles from occurring is a lot of product price inflation, which historically has tended to undercut stock markets almost everywhere. There is a clear tradeoff. If monetary policy succeeds in one, it fails in the other. Now, unless we have the capability of playing in between and managing to know exactly when to push a little here and to pull a little there, it is not obvious to me that there is a simple set of monetary policy solutions that deflate the bubble. We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it. My concern is that I am not sure what else it will do. But there are other ways that one can contemplate."
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