>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?
>And how do we factor that assessment into monetary policy? We as
>central bankers need not be concerned if a collapsing financial
>asset bubble does not threaten to impair the real economy, its
>production, jobs, and price stability. Indeed, the sharp stock
>market break of 1987 had few negative consequences for the economy.
>But we should not underestimate or become complacent about the
>complexity of the interactions of asset markets and the economy.
>Thus, evaluating shifts in balance sheets generally, and in asset
>prices particularly, must be an integral part of the development of
>monetary policy.
But "irrational exuberance" was the real truth of that passage, and the rest was chaff.
Back to Wolfie. Yeah, there's a difference between NK and Iraq. But even though Iraq has lots of oil, sanctions limited how much it could sell, and the oil infrastructure was ravaged by sanctions and war. The real truth of the passage is "The country swims on a sea of oil." The context is a distraction.
Doug