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I can't tell whether Greenspan contradicted himself or not. He says that he's been working in the "forecasting" business for fifteen years using complex mathematical formulas. He also gives his psychological explanation of how people's perceptions of the economy fluctuate between euphoria and fear and that understanding this is more useful in his position than the math. But he uses the mathematical method because he hasn't yet figured out how to predict peoples perceptions of the economy. Yet, his explanation for the drop in interest rates (which seems to hurt the majority of Americans that are working) is purely a psychological explanation. So, does he use math or psych. Is he hurting the working majority by lowering interest rates or not? Corruption? Why don't I understand economics?Also, if people don't change, as he so eloquently puts, why haven't we figured out a way to predict them? They're just sitting there, not changing....
Well, I believe he said 50 years, to exemplify how little we actually can predict after such a prolonged period of using mathematical models. Additionally, we have to understand that people's fears and risk-taking vary tremendously - a crushing blow to one investor is another's pay day. Any "psychological" prediction model would forecast stagnation - the emtions would just balance themselves out with so many people involved, all becoming fearful and euphoric by different means. The reason the fed drops the interest rate in most cases is to quell the fears of many - we are on the brink of a catastrophic housing disaster, the real estate market just isn't what it ought to be. Miami is the perfect example - there are dozens of new condo high-rises going up at any given point, and each condo inside running about a 1/2 million dollars. How long can that kind of construction and asking price really be sustained? The fed drops the interest rates "unexpectingly" at a time like yesterday for very calculated reasons - the uncertainty lies in when exactly that drop should come. Other instances are more predictable, like some after the dotcom crash, 9/11, and other economic recessions. Basically, the point is to inflate the dollar to make the martket appear to be more puffed up than it actually is. Lower interest rates also doop people into borrowing more and more money, simply because the interest they have to pay back is slightly lower. These lender booms cause huge problems further down the road as collecting time approaches. So for the average worker, this seems like a good thing, at least in the short term, because perhaps they may not be aware of the full longer term consequences, or the meat and bones of what actually happens when the interest rate is lowered beyond a "market improves" understanding (the PR style Greenspan was trying to provide, tho Stewart was probing about the reality of it all). I would shy away from calling it corruption, its merely the U.S. brand of capitalism, the way we decided to run the economy. Its not corruption on the part of the "investor class," just exploitation. What Greenspan was alluding to at the end, I believe, is just a lack of his knowledge of the American consumer psychology. He's a numbers guy, maybe even a mathematical genius, but just because he can't understand human behavior and consumer trends, doesn't mean the American worker, consumer, and investor haven't changed over the past century, it just means he doesn't know how or why
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I can't tell whether Greenspan contradicted himself or not. He says that he's been working in the "forecasting" business for fifteen years using complex mathematical formulas. He also gives his psychological explanation of how people's perceptions of the economy fluctuate between euphoria and fear and that understanding this is more useful in his position than the math. But he uses the mathematical method because he hasn't yet figured out how to predict peoples perceptions of the economy. Yet, his explanation for the drop in interest rates (which seems to hurt the majority of Americans that are working) is purely a psychological explanation. So, does he use math or psych. Is he hurting the working majority by lowering interest rates or not? Corruption? Why don't I understand economics?
Also, if people don't change, as he so eloquently puts, why haven't we figured out a way to predict them? They're just sitting there, not changing....
Well, I believe he said 50 years, to exemplify how little we actually can predict after such a prolonged period of using mathematical models.
Additionally, we have to understand that people's fears and risk-taking vary tremendously - a crushing blow to one investor is another's pay day. Any "psychological" prediction model would forecast stagnation - the emtions would just balance themselves out with so many people involved, all becoming fearful and euphoric by different means.
The reason the fed drops the interest rate in most cases is to quell the fears of many - we are on the brink of a catastrophic housing disaster, the real estate market just isn't what it ought to be. Miami is the perfect example - there are dozens of new condo high-rises going up at any given point, and each condo inside running about a 1/2 million dollars. How long can that kind of construction and asking price really be sustained? The fed drops the interest rates "unexpectingly" at a time like yesterday for very calculated reasons - the uncertainty lies in when exactly that drop should come. Other instances are more predictable, like some after the dotcom crash, 9/11, and other economic recessions. Basically, the point is to inflate the dollar to make the martket appear to be more puffed up than it actually is. Lower interest rates also doop people into borrowing more and more money, simply because the interest they have to pay back is slightly lower. These lender booms cause huge problems further down the road as collecting time approaches.
So for the average worker, this seems like a good thing, at least in the short term, because perhaps they may not be aware of the full longer term consequences, or the meat and bones of what actually happens when the interest rate is lowered beyond a "market improves" understanding (the PR style Greenspan was trying to provide, tho Stewart was probing about the reality of it all).
I would shy away from calling it corruption, its merely the U.S. brand of capitalism, the way we decided to run the economy. Its not corruption on the part of the "investor class," just exploitation.
What Greenspan was alluding to at the end, I believe, is just a lack of his knowledge of the American consumer psychology. He's a numbers guy, maybe even a mathematical genius, but just because he can't understand human behavior and consumer trends, doesn't mean the American worker, consumer, and investor haven't changed over the past century, it just means he doesn't know how or why
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