[OPE-L:6119] Re: Re: Re: possible ways out of the 'crisis'?

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Wed Oct 31 2001 - 13:03:43 EST

patrick wrote:

>. In part, the Fed initially raised interest rates to squeeze out 
> stock market speculation, to bring price-earnings ratios back in line with 
> historical averages. 
yes but haven't P/E ratios risen even farther vis a vis historical averages? 
doesn't this suggest that the primary effect of the rate reductions has been to 
finance an asset inflation. Perhaps through second mortgages to buy into what 
was believed to be the bottom of the market? 

So, I don't think Greenspan et al. are particularly 
> distressed about the current level of stock indices even if they are 
> carefully watching the direction of movement.

shouldn't he be distressed by the current P/E ratios? 

> If lowering interest rates is futile, do you prefer rising interest rates? 
> Constant nominal rates with declining inflation - in which case we get 
> higher real interest rates?

All of these options may not point a way out. 


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