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Technology Stocks : USRX
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To: sunny who wrote (7919)1/10/1997 4:36:00 PM
From: IngotWeTrust   of 18024
 
Sunny, here is a response that might have bearing on your Alan GreenExpand Fed Chief reflection:

(a quote from Alan Greenspan which he wrote in 1966
discussing the 1929 stock market crash.) Source: Strategic Investing

> "When business in the United States underwent a mild
contraction in 1927, the Federal Reserve created more
paper reserves in the hope of forestalling any possible
ban reserve shortage ... The reasoning of the authorities
involved was as follows: if the Federal Reserve pumped
excessive paper reserves into American banks, interest
rates in the United States would fall to a level
comparable with those in Great Britain; this would act to
stop Britain's gold loss and avoid the political
embarrassment of having to raise interest rates.
...The Fed succeeded: it stopped the gold loss, but it nearly
destroyed the economies of the world in the process.
...The excess credit which the Fed pumped into the economy
spilled over into the stock market -- triggering a
fantastic speculative boom.
...Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed ... The world economies plunged into the Great Depression of the 1930's." End Quote

Tis not my forecast of a depression, but to support this view: some of the liquidity created by US courtesy of bailing out the banking system in Japan needs to be sopped up to help stabilize that irrational exuberance.
Greenspan recognizes this.
There should be interesting times ahead.
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