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Article: Fed Policy and the Effects of a Stock Market Crash on the Economy.(Federal Reserve Board unable to offset effects of market crash)
- Article from:
- Business Economics
- Article date:
- April 1, 2000
- Author:
CopyrightCOPYRIGHT 2000 The National Association for Business Economists. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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IS THE FED TIGHTENING TOO LITTLE AND TOO LATE?
Businesses face the risk at the current time of a stock market crash. Profits will undoubtedly suffer if there is a crash and the economy goes into a recession. This paper shows that unless there has been a huge increase in the long run PE ratio, the current level of stock prices implies an unrealistically large share of profits in GDP in the future. The paper also suggests that the Fed does not have the power to prevent a recession from taking place there is a crash.
A major risk that many, if not most, businesses face at the current time is a possible stock market crash. If there is a crash and the U.S. ...