My post wasn't about the stock market bubble, which the Fed is certainly supporting. It was about whether monetary creation over the last four years is sufficient to cause inflation of the kind experienced in the later 1970s.
I don't think the Fed meant to reinflate the bubble, but I do think it has been acting to try to prevent a deflationary collapse of credit institutions and credit.
M2, as we who pay attention to it know, has hit about 12% annual growth twice this year, but the total growth over the last four years has been 24%, and this is much below what permitted inflation in the past. Vast increases in output of commodities and goods worldwide are keeping prices down despite monetary growth.
The Fed cannot keep this up, or we would have a total of 60% increase in M2 over four years. When the bubble-producing growth eased earlier this year, a decline in the stock market quickly ensued, and when it resumed, the market quickly recovered. I am not saying there's a strict cause and effect relationship, but the easing and tightening contributed.
It is somewhat disappointing that you should imagine that I do not understand what the Fed has done. The Fed's expansion of the money supply, lowering of interest rates, and failure to control credit have permitted an acceleration of reckless speculation almost unheard of in the American stock market. Three quick rate cuts was a foolish thing to do, giving speculators entirely the wrong impression and probably doing little to forestall an incipient business downturn. |
