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Crash Warning

Bundesbank warns of crash

By Paul E. Erdman, CBS MarketWatch Last Update: 11:57 AM ET Feb 24, 2000 Commentary Letters to the Editor

"SAN FRANCISCO (CBS.MW) -- While Alan Greenspan and the Federal Reserve are increasingly worried about the wealth effect stemming from high stock values which could lead to an overheating of the economy, the world's other most respected central bank, Germany's Bundesbank is worried about exactly the opposite."

"Although stock prices are at very high levels throughout the industrialized world, the biggest risks, the Bundesbank claims, are in the United States. According to a statement issued today, the Bundesbank has reached the conclusion that "the danger of a stock market crash is one that should be taken seriously. It represents a danger that could undermine the entire global economy."

"Although stock prices are at very high levels throughout the industrialized world, the biggest risks, the Bundesbank claims, are in the United States."

"A major correction there, says the Bundesbank, could exert a very serious negative wealth effect on the entire American economy, jeopardizing future growth prospects not only there but also around the world."

"Dollar danger"

"Second on their list of dangers for the United States is the dollar."

"If the American current account deficit continues to grow, this will lead to a deterioration in the international value of the dollar, which, in turn will lead to rising inflation in the United States."

"Just a friendly warning from Germany."

"But what to do about it? If Alan Greenspan targets the stock market, as he increasingly seems bent on doing, he might trigger a process that could easily get out of hand -- justifying the fears of the Bundesbank -- with serious consequences not just for investors but for all participants in our economy."

"Furthermore, despite the German central bank warning, as any investor knows, the broader stock market in the United States has been in a process of orderly retreat for the entire year so far. Where Nasdaq is concerned, if the Fed tries to prick that bubble, the law of unintentional consequences could become operational yet again."

"So, Alan, my advice would be to stick to what you know best. If your principal aim is to contain future inflation, you might consider paying more attention to the money supply (following the example of the European Central Bank) and especially to the current account deficit and its potential effect on the dollar and inflation. Forget about the price of Cisco Systems."

My comments: Got physicals?

-- Deb M. (vmcclell@columbus.rr.com), February 24, 2000

Answers

Deb and others .... Remember Kessler's First Law ; " If something can go wrong , it WILL ! " And this was before Murphy was born !! Eagle

-- Hal Walker (e999eagle@FREEWWWEB.COM), February 24, 2000.

Sounds like the Bundesbank, "Just a friendly warning from Germany." is trying to help us downhill. 'Buy on rumor, sell on news' is the way the herd navigates.

-- m (discovery@shields.up), February 24, 2000.

Why is it the Bundesbank's fault if the money supply is too high? Looks to me like the Bundesbank is only saying the obvious.

-- haha (haha@haha.com), February 24, 2000.

Deb M.,

On the thread "Oil Prices: Rep Campbell to file fuel price releif bill" I posted a scenario for the next several months out.

After reading your post, I already feel I ought to go back and revise it! For a national bank to make such a statement strikes me as not to be ignored. Their purpose may not be so much for us as for their European and Euro colleagues. Something along the lines of 'are you sure you want to ride that train much longer?'.

-- redeye in ohio (not@work.com), February 24, 2000.

Redeye,

Agreed! It's a sticky mess we're in right now, and if we're not careful, we could sink far and fast. IMHO, I think greed is the primary factor, but I do wonder how much could of this could be attributed to political manipulation (China)... A few finely-worded phrases might do more permanent, long-term damage than weapons could ever do.

All of these events, happening now, makes me go "hmmmmmmmmm".

-- Deb M. (vmcclell@columbus.rr.com), February 24, 2000.

Deb and Redeye(and others),
One more rachet up with china:OT: Report: U.S. Warships to Sail Past Taiwan

An excelent post by Egalitarian:U.S. Is Vulnerable to Foreign Attacks, Hill Panel Is Told!
I wish these didn't all have connections, but I feel the invisible threads crisscrossing beyond seeing, the hair on the back of my neck is "standing up" and I don't think that it is caused by too much coffee.

-- Possible Impact (posim@hotmail.com), February 24, 2000.

Speaking of making the hair on the back of your neck stand up -- or feeling like somebody's walking on your permanent resting spot:

"NewsMax.com: Russia, China Bidding on Panama Base"

-- redeye in ohio (not@work.com), February 24, 2000.

Had no coffee the last few days. Finally had to have my neck shaved, as the close hairs stood up so straight they were keeping me from settling head on pillow. Plus the sun ain't any quieter now than it weere last week.

-- Squirrel Hunter (nuts@upina.cellrelaytower), February 24, 2000.

Lived in Germany (Manneheim, Heidleberg,Stutgart) for years in early sixties. The germans have a different perspective on money.
A - they are gold to the bone. All central europeans have a bent for metal to preserve wealth in hard and easy times.
B - The nature of the tutonic peoples (look to their myths) is deeply rooted in cycles. They do not buy perpetual progress. Their natural tendancy toward seeing life as riding from high to low on cycles has been reinforced by their history. They see hard times a'commin.

My german friends are not alone. I am gaulic by extraction, and feel in my bones that easy is over, and hard is just about here. Almost smell the first hint of it. Not just for us, but for everyone. After all, its a small world after all.

I sometimes wonder what it will take to get that through our thick skulls. Will we learn? Or are the progress, progress, ever upwards, perpetual motion guys just too damned seductive to resist?

-- pliney the younger (pliney@puget.sound.early.spring), February 24, 2000.

Pliney, I've got some of that blood in me also. And also some Scottish. Darn 'fey' bits every so often mess with the logical side of me. But that side of me's been accurate way to often to be ignored. And it hasn't been happy for awhile about these topics.

Seriously, I found your perspective on the Germans and gold quite interesting. I'd presume the central German banks have not been doing what, for example the Bank of England has, in terms of continuing to sell off gold reserves.

Squirrel Hunter, I finally let mine grow kindof longish back there -- saves on the pillow cases and sure helps with the Winter weather! Oh, from what I've been reading about the next week or so, you might want to stay down outta those higher towers and trees -- it's been getting monotonous that what I read predicted for a given period is about as reliable as local weather forecasts. When the pro's keep getting caught off-step time after time, it lends new credence to the idea that this Solar Max may be less than typical - as if we have that much serious data on many past Solar Max events!

I'm now getting darn curious about 6 to 18-month weather trends for this part of the U.S., and specifically about both the Pacific oscillations' situation and the gentle but implaccable influence of changes in the energy from the sun. More specifically, I am looking ahead at deviations from the 'norm' either way -- far wetter than normal, or far drier than normal. Haven't found much yet -- if I find something solid I'll put it up.

-- redeye in ohio (not@work.com), February 25, 2000.