The fear is that the herd can/will change the direction, e.g., to Asia. If it happens suddenly, there will be a "very rapid decline in US asset values," as Greenspan cautioned. [US$, stocks, and bonds will fall].
Sankar, just to add my 2 cents worth, I believe A1 is correct in suggesting you took Greenspan out of context in a seriously misleading way. In the Wall Street Journal piece, Greenspan is quoted as cautioning that "very rapid asset price declines - in equity and real estate especially" - can be " a virulently negative force in the economy."
The WSJ emphasized that Greenspan did not predict a stock market plunge, nor did he even comment on the current level of the stock market. The only prediction in the article I could find Greenspan making, if it can be called that, is positive. He dismisses the chances of a decline in prices of goods and services as "not...a significant near-term risk." (an outspoken minority of economists recently have suggested otherwise)
Greenspan went on to explain why rapidly declining asset prices would be bad, and explains why slowly deflating prices would be less worrisome. The bulk of his address, btw, dealt with none of this but instead addressed the intracies of accurately measuring inflation.
Greenspan said nothing even remotely suggesting he fears a herd phenomenon is presently out there -- one that could suddenly change direction and thereby precipitate rapid U.S. deflation.
Geoff
P.S. BTW, isn't it a bit disingenuous to suggest as you did that reading Greenspan's entire speech could have compromised your independence? |
