Alan Greenspan – On “The Stock Market As A Stimulus”

Alan Greenspan gave an interview to The Wall Street Journal on January 7.  I found various parts to be of interest, and in many instances I disagree (partially or fully) with what he says.  I  wrote a February 3 blog post on his comments in the interview concerning the primary purpose of a central bank.

Given the recent steep climb in the stock market, I think it is interesting to highlight his comments on the interaction between The Federal Reserve and the stock market.   While his entire thoughts on the issue are notable, I found his comment at the 16:24 mark to be, for a number of reasons, very provocative:

“…the stock market overall is the only type of stimulus that you can get in the economy which doesn’t have any debt associated with it.”


I’ll likely further comment on this, as well as other recent comments made by Federal Reserve officials on the stock market, in a future post…


A Special Note concerning our economic situation is found here

SPX at 1339.26 as this post is written

One thought on “Alan Greenspan – On “The Stock Market As A Stimulus”

  1. Alan Gornik

    I have two thoughts on this to sort out: 1)The overall stock market rise means that the market consensus is that companies overall are now worth more because they are doing better (and/or perhaps that overall market risk has declined.) This is a reflection of perceptions of underlying business conditions and expectations. Thus the overall stock market rise can’t “stimulate” because it IS the market. If a rising market “stimulated”, it would be like a perpetual motion machine or getting something for nothing. But 2) If MY specific portfolio has gone up and I sell stock in order to buy, say, that car that I can now afford only because of my new increase in stock wealth, that would seem to be a stimulus to the auto market. So what it comes down to is that if MY specific wealth goes up, for whatever reason really, that can be a stimulus to other specific consumer markets that I choose to buy from. So it is the rise in value of my specific portfolio and wealth that leads to a rise in specific other markets, not the rise in the whole market leading to further increases in the whole market. I am trying to articulate a difference between points one and two. On or off target?

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