Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
Alan GreenspanI love facts and figures. It's like following a detective story, piecing together what's going on in the economy.
Alan GreenspanI was a fairly good amateur musician, and I was an average professional. But the one thing I saw was that the big band business was fading.
Alan GreenspanWe may be in a rapidly evolving international financial system with all the bells and whistles of the so-called new economy. But the old-economy rules of prudence are as formidable as ever. We violate them at our own peril.
Alan Greenspan