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To: Bobby Yellin who wrote (39817)	8/31/1999 6:20:00 PM
From: goldsnow	Respond to of 116976

What's too high? By Paul E. Erdman, CBS MarketWatch Last Update: 1:47 PM ET Aug 30, 1999 Commentary SAN FRANCISCO (CBS.MW) -- Alan Greenspan would have us believe that the threat of another hike in interest rates might be in the cards in order to counter the inflationary effects of a further increase in stock prices. Central banks basically have no business fooling around with asset prices. The business cycle does that work for them. -- Paul E. Erdman We've heard this sort of thing before, most notably in his famous reference to irrational exuberance. Since he made that remark, the market is up 50 percent. And still no inflation. Why this concentration on the stock market? If Greenspan is worried about "asset inflation" what about what's happening to real estate prices in places like California? An average "luxury" home in the San Francisco Bay Area now costs $1.5 million. In L.A. and San Diego it's $1.1 million. Referring to San Francisco, in a newsletter put out by the bank that specializes in the financing of these type of houses, First Republic Bank says: "You'd need to go back to 13th-century Venice to find another example of such a rapid increase in wealth among people in a small geographic area." So if the enemy is wealth creation, why not make a preemptive strike against Baghdad by the Bay? More Erdman: Misconceptions Crisis risk still high Rich get richer The world & U.S. Who's bailing on $? Euro-style junk Looking for trouble Gold producers' ire Japan's the place? Burning billions Greener Pastures Banking Tech Surplus spending Lessons from Asia Currency village Euro's here to stay Gold bugs Y2K chickens Inflation? Deflation? Russia's worries Fed Y2K bug Alan and assets All this raises an important issue. Why has Alan Greenspan chosen to become the self-appointed expert on whether or not asset values are too high? The last time a central bank did this was in the early 1990's in Japan. They burst the bubbles in real estate and the stock market and look what happened subsequently: a decade of stagnation. Periodically, the Japanese authorities have also intervened aggressively in both the stock and foreign exchange markets -- with dismal results. Central banks basically have no business fooling around with asset prices. The business cycle does that work for them. Our economy is already starting to slow. If this continues in a gradual manner, we will see a cooling off of both the real estate and stock markets -- also gradually. Nothing spectacular. No "seizing up." Just a pause that refreshes. So maybe Mr. Greenspan ought to take a long vacation this fall, and spend part of it in a place that, to this day, reflects what unregulated wealth creation can do for a society and culture -- like Venice. Economist and author Paul E. Erdman is a columnist for CBS MarketWatch. cbs.marketwatch.com