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I cannot understand why Alan Greenspan continues to believe that raising the prime rate repeatedly will stem the tide. Apparently he isn’t trying to influence the stock market–just control inflation. But a runaway market did give a lot of new investors the idea that they were getting rich and cause them to spend unrealized gains, which certainly contributed to inflation.
It seems that his big fear is that too much inflation will push workers to demand wage increases, which would lead to disaster. If we were operating at 10 percent margin in the market, as was true in 1929, instead of 50 percent, the collapse would make 1929 look like a picnic. Why not eliminate margin entirely? The brokers and bankers have had their fun.
