Artificial World vs the Market

Look at the trouble Alan Greenspan caused by keeping interest rates too low for too long to prevent a deflation in asset prices after the technology bubble burst. Type A, 'must achieve' financiers, armed to the teeth with computers, algorithms and theories that markets are always correct (and when they aren't knowing the fed would bail them out) took all that cheap money and put it into projects that would not have existed if the cheap money had not been there in the first place. Artificial money found its artificial home. In this artificial world buyers who would normally not have had the demand or the money to buy the new output had to be given both. New valuations justifying entry and reentry into this market were easily churned out by the computers.

The only down side to an efficiently operating artificial market is the real market where goods and services that should have been produced but weren't because of this misdirection, begins to contract. So as the notional wealth continues to expand at exponential rates the real wealth starts to disappear. The notional wealth for many assets moves far beyond what people can afford to borrow in a world of contracting real wealth so demand for these overproduced artificial products starts to fall leading to deflation.

This really is troublesome for the Fed chairman Ben Bernanke. He and the financial authorities are determined to stop all this reckless lending and fraudulent valuation practices that Wall St got involved in because of all the cheap money they had to lend out to prevent the 2002 deflation threat. At the same time he has to cut interest rates even lower (now that making up valuations and fraudulent practices are off limits) to fix this 2008 deflation problem and keep the asset prices up to the levels that were made up in the fraudulent artificial world. He must prevent market's annoying tendency of trying to correctly value assets downwards to levels affordable by humans with a normal life span, who are just a little bit less keen to borrow as they seem to remember the foolishness of paying too much with Alan Greenspan's cheap money. If they won't take the money and indebt themselves even further he'll have to force them to take the money by printing so much of it that it will be impossible for them to say no. He's studied for this moment all his life and he knows all the tricks – he can post them more cheques in the post, drop it out of the sky in helicopters or give tons of it to the government as he can be sure they'll spend it. Whatever happens he will prevent those high assets prices from Greenspan's first bubble from dropping. It's lucky we have someone like that at the helm of the US Federal Reserve who not only understands the market but is constantly there to stand in the way of the market trying to revalue the Fed and Wall Street's artificial world.