Is It Irrational Exuberance or Obsolete Economics and Regulation?
The Federal Reserve says the savings rate in the United States is the lowest in history. Is this true?
In 1969, a 360K computer cost $15 million, without peripherals (storage devices.)
Today, a computer 100 times bigger and 100 times faster with millions of times more storage capacity costs $1,500; a 10,000 times reduction in price.
If half the households in the U.S. have computers, that's $750 trillion worth of installed computing capacity in 1969 dollars (when the GNP was only $1 trillion.) Someone has been saving a lot of money to have installed so much computing capacity.
The installed computing capacity of the United States is 750 times the whole GNP 30 years ago; and it's producing only an $8 or $9 trillion GNP in 2000 dollars.What Greenspan sees as inflation is needed to provide liquidity to make the world economy can grow so everyone, even Palestinians, Ethiopians and Asians, can enjoy a decent standard of living.
The Fed raising the interest rates is not going to do anything except keep the dollar overvalued and squeeze Europe and the developing world while raising the cost of borrowing in a country which has managed to invest 750 times the entire GNP of 30 years before in computer capacity alone.
Allan Greenspan is a dinosaur. Let's hope he becomes extinct before he destroys the economy.
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Contact: Joshua Leinsdorf