The Technology Miracle Was A Mirage

Despite the fact that Alan Greenspan wielded great power, he did not prevent the stock market bubble from bursting in 2001. By definition, a stock market bubble exists when the value of stocks has more impact on the economy than the economy on the value of stocks. By allowing disaster to strike, he brought US along with the world into financial ruin. All these wouldn't have occurred if he had put the right policies in place to curb the burgeoning technology obsessed  bubble. Let us now explore the coup de grace he made to making the bubble burst a reality.

During the period of 2000 to 2001, there were several initial public offerings (IPOs) where many companies vied to be listed in the overly optimistic stock market to raise capital. Despite such abnormal figures, Alan Greenspan failed to recognize that the IPOs were responses to a stock market bubble instead of the technology miracle. Holding on strongly to his erroneous economic beliefs, he did not increase margin requirements here which would have discouraged people from touching these IPO stocks that eventually burnt the wealth of many.

While he increased interest rates to 6.5% in May 2000, it was already too late to dampen the excessive optimism in the market. Moreover, the aim of this hike was not to stop bubble because he did not know of it in the first place. Such ignorance on his part was a bane to the economy as it ushered in disaster in years to come.

Looking at the technology miracle he claimed, it was also appalling to find out that there was no productivity growth in 99% of the economy outside the PC industry. In fact, it got worse but the technologically obsessed Federal Reserve did not notice it.

Furthermore, when energy prices rose sharply during this period, Alan Greenspan did not reduce interest rates as he thought the economy was in a good condition. In retrospect, this is ironical as he seems to have a propensity to judge situations wrongly by slashing interest rates when he shouldn't but not doing so when he should have done it.

To add on, when he shouldn't have done so, Alan Greenspan slashed interest rates to 6% on 3 January 2001. This reignited speculation and was done because all along, he has worked with flawed inflation and productivity data that understated inflation and overstated productivity.

To make things worse, he made 11 interest rate cuts for 2001 to 1.75% with no effect on the stock market. This clearly shows that the Federal Reserve has lost the effectiveness of its interest rate tool. Instead, such cuts worsened the situation as it gave people the chance to take out their money from stocks.

Here, as many people withdraw their money from stocks, the bubble bursts and following that, the market begins to crash. After years of ignorance in the Federal Reserve, the inevitable occurs and with this financial onslaught on the economy, more wealth was lost than created, plunging many into misery and despair.

In conclusion, having seen ignorance happening even in the leaders we trust, I believe readers already understand the fact that we are our only solution to finances. To get rich, we ought to make use of our greatest assets and make them work for us. The age of entitlement is over and the economy has evolved. Now, you can choose to move on or be left behind.