At 12:34 PM 2/9/99 -0500, Mike wrote:
>I am a bit worried that this might turn into a speculative bubble, for
>don't see it as one yet. Compared to the bubble in Japan a decade ago, we are
>still at a small fraction of the level of speculation seen there.
That's true. I think the average P/E ratio for Japanese stocks at the height was about three times our current level. And, I would argue, their economy was fundamentally far less sound that that of the U.S.
>I do wonder as to how much the Fed is trying to sustain the economy, like the
>did in the late 80s with steadily decreasing reserve percentages, etc. but
>economic numbers keep coming out ahead of what the experts thought, both in
>the areas of employment, productivity, pay, etc. I'm starting to think that
>the capitalist economy is finally coming out of the feedback loop its been in
>for so long, mostly cause its got so damn many pistons in it that it acts
>a turbine now....
The fed is not trying to sustain the economy or the stock market. Greenspan's goal is very clear -- maintain price stability. Because of the enormous international role of the US economy, his policy moves now cannot entirely ignore effects on other countries. He has said several times that the Fed sets its policies only in relation to the US, yet recently it's clear that moves towards interest rises have been blunted by the implications for the world economy. (Of course he can justify that by the possible feedback effects of less buying of US exports.)
The latest productivity figures, revised upward for 4Q 98 show that the US economy is still well above the average productivity gains of the last two decades. The information economy really is making a difference. I am fairly confident that we will see another ten years of strong growth in the US. Europe is a few years behind in the information economy revolution, but should soon feel the gains, so long as the statist governments there don't stifle change.
Philosophical issues of technology
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