FROM RESEARCH DESK:

Dr.Ben Bernanke bends relative to Alan Greenspan: 

One interesting point: Like me Alan Greenspan also studied Music:

Dr. Bernanke deviates from Alan Greenspan, says, "One of the lessons learned from the crisis is that the Fed can't focus solely on the safety and soundness of individual banks, but rather on the health of t...he financial system as a whole. The Federal Reserve is working to beef up oversight of financial companies to better protect the nation from another financial crisis in the future. Regulatory agencies must thus supervise financial institutions and critical infrastructures with an eye toward overall financial stability as well as the safety and soundness of each individual institution and system."

Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006".

William Jennings Bryan once reportedly mesmerized the Democratic Convention of 1896 with his memorable ". . . you shall not crucify mankind upon a cross of gold." His utterances underscored the profoundly divisive role of money in his time--a divisiveness that remains apparent today. For, at root, money--serving as a store of value and medium of exchange--is the lubricant that enables a society to organize itself to achieve economic progress.

It reminds me of the US stagflation of the 1970s when a thorough conceptual overhaul of economic thinking and policy making took place. Monetarism, and new insights into the effects of anticipatory expectations on economic activity and price setting, competed strongly against the traditional Keynesianism. Gradually the power of state intervention to achieve particular economic outcomes came to be seen as much more limited. A consensus gradually emerged in the late 1970s in the US, that inflation destroyed jobs, or at least could not create them.Now the same inflation tiger is threatening to destabilize the Indian and world economies.

Alan Greenspan once said, "Despite waxing and waning over the decades, a deep-seated tension still exists over government's role as an economic policymaker. This tension is evident in Congressional debates, campaign rhetoric, and our ubiquitous talk shows. Monetary policy works with a lag, we need to be forward looking, taking actions to forestall imbalances that may not be visible for many months. There is no alternative to basing actions on forecasts, at least implicitly. It means that often we need to tighten or ease before the need for action is evident to the public at large, and that policy may have to reverse course from time to time as the underlying forces acting on the economy shift. This process is not easy to get right at all times, and it is often difficult to convey to the American (the US) people, whose support is essential to our mission."

Indeed these statements are so very true even today....!! The issues with which we are confronted differ in urgency over time.
Inflation concerns were not a dominant factor in economic forecasting in the 1950s and early 1960s, in the US. Since the late 1970s, however, such concerns have become an important element in the US's policymaking.

More recently inflation has been rather at uncomfortable zone in India and its future course remains uncertain. 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 the question is how do we know when irrational exuberance will unduly escalate asset values? And how do we factor that assessment into monetary policy?