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To: KeepItSimple who wrote (66364)	7/5/1999 10:04:00 PM
From: Bill Harmond	Respond to of 164684

>>Maybe I was busy smoking crack I thought you liked crystal. You're sending mixed signals here.

To: KeepItSimple who wrote (66364)	7/6/1999 12:06:00 AM
From: dbblg	Read Replies (1) \| Respond to of 164684

>>Are you referring to the DJIA or Nasdaq? Maybe I was busy smoking crack, but I could have sworn I heard Greenspan rail against "irrational exhuberence" back when the DJIA was around 7000. Don't know what you were smoking, but he didn't rail against anything. He asked, rhetorically, how central bankers could differentiate between legitimate increases in asset prices caused by fundamental shifts, such as lower inflation expectations, and irrational exuberance. Examining that speech outside the context of the long debate over the role of monetary policy, and central banks in it, is, imo, a mistake. The speech can be found at: federalreserve.gov Here's a quote: Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.