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.”

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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…

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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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