[obrolan-bandar] As you can see, all the Fed can do, like most of the public, is react to what is going on in the markets...THE FED FOLLOWS THE MARKET SOONEST

http://www.elliottwave.com/features/default.aspx?cat=mw*aid=3324*time=pm

Greenspan Sees a Bubble Ready to Pop?
9/7/2007 3:37:05 PM

The U.S. markets closed lower today, Friday, September 7, 2007

By Morgan Lee

Even though he isn't the official "guru" of the financial world anymore, former Federal Reserve Chairman Alan Greenspan still has the ear of the financial press. And whenever he opens his mouth, you can bet there will be at least 10 reporters there to record what he says.

With that in mind, the comments Greenspan made on Thursday night (Sept. 6) are particularly interesting.

Speaking to a group of academic economists at an event in Washington, D.C., Greenspan made several observations about the shape of the U.S. economy, including the fact that the current bubble is following a pattern of bubbles past. Yet that was just the beginning; Greenspan went on to note that:

• "Business expansions are driven by euphoria and contractions by fear."
• "Fear as a driver, which is going on today, is far more potent than euphoria."
• "Bubbles cannot be defused until the fever breaks."
• "Bubbles can't be defused through incremental adjustments in interest rates."

What gives? Has Alan Greenspan suddenly become a Socionomist?

Well, not exactly. In that same speech, Greenspan went on to note that when he, as Fed Chairman, doubled interest rates in 1994-95, it "stopped the nascent stock market boom." He did go on to say that stocks took off again after he stopped them, and that the same pattern occurred in 1997 - but, apparently, he never offered any real explanations as to why.

As you can see, Greenspan hasn't given himself over to the Wave Principle just yet. If he had, he would have known that it is impossible for the Fed to create or turn the trend in the markets. That's because the markets are shaped by social mood - the shared emotions of the human race. And by their very nature, emotions are not rational - which is the opposite of what the majority of economists assume when they say things like, "the markets are repricing for lower growth and expectations of Fed cuts." (Associated Press)

The September issues of the Elliott Wave Theorist and Elliott Wave Financial Forecast highlighted the Fed's inability to affect the markets by simply changing interest rates.

"Do lower interest rates cause recovery? No, they simply reflect a crashing market for credit. The market makes interest rates rise and fall, and the Fed's rates just typically follow suit." (September Theorist)

This chart was also offered as proof in the Financial Forecast:

As you can see, all the Fed can do, like most of the public, is react to what is going on in the markets.

Greenspan is certainly right about one thing, however - the economy's turmoil does fit a pattern. And it's a pattern EWI has foreshadowed for years. Get a risk free subscription to EWI's Financial Forecast Service and find out exactly where we think it's headed.