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Strategies & Market Trends : The Stock Market Bubble -- Ignore unavailable to you. Want to Upgrade?

To: Professor Dotcomm who wrote (3221)	6/6/2000 11:04:00 AM
From: pater tenebrarum	Respond to of 3339

you are quite right. unfortunately, due to the disinflation backdrop, CB's regularly make the mistake of NOT nipping a developing asset bubble in the bud.

To: Professor Dotcomm who wrote (3221)	6/6/2000 2:37:00 PM
From: Tommaso	Respond to of 3339

The reason that the value of money went up from 1865 onward was the gradual return to a gold standard and the retirement of "greenbacks," the fiat currency of the Civil War. And gold was harder to obtain than it is now with powerful machinery and heap leaching methods. There was terrific inflation during the Civil War, at least in terms of paper currency and to some degree even as measured in gold. Wars eat up material and labor and cause shortages of both by destroying capital. But it's true that great productivity increases tend to suppress inflation. This is something the monetarists forget to emphasize. It's too late to talk about stopping an asset bubble. It has happened--and in large part it is a monetary phenomenon, since the Federal Reserve has allowed monetary growth far beyond what has been needed for healthy economic activity. I don't know what will happen, but I know that assets are seriously overvalued and credit has been much too easy to obtain. There is a terrible illusion of wealth that does not really exist.

To: Professor Dotcomm who wrote (3221)	6/6/2000 4:40:00 PM
From: Professor Dotcomm	Read Replies (1) \| Respond to of 3339

My dates were arbitrarily chosen from the beginning of the last half of the 19th century to the beginning of WW1. You are right, 1865 would have been a better starting point but also 1904 would have been a better end point. Why 1904? Because it heralded the start of the Great Kaffir Boom - the discovery of massive gold resources in South Africa. This sudden abundance of gold (and governments sticking to the gold standard), resulted in quite strong inflation from 1904 - 1914. This was because the gold miners had no problem selling the stuff as all the equivalents of central banks were buying all of it at guaranteed prices with the result that huge amounts of spending money came in without any major increases in productivity (unlike the Internet!). I dug out the original statistic from a 1966 publication by the Bank of England. The premise still held true even though its period ran from 1850 to 1965 thus including 25 years of the massive war induced (and then government induced) inflation from 1940 onwards