FRB: Speech, Greenspan -- Central banking in a democratic society -- December 5, 1996

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.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

Of course I don't agree that "nobody could foresee...". But that line was only made possible because economists - in general - did not shout and wave their arms about the danger. Any economist should have been capable of reading the global-imbalances-writing on the wall. How seriously did they decide to speak out, to work together to get the message across?

As I suggested to Melanchthon, most were content to leave those who did speak out to carry on as voices in the wilderness.

(PS Greenspan doesn't count as one who "spoke out" ;)).

My point up there at the beginning was about the way a narrative was being presented about the years preceding the breakdown. Audible, in the sense that enough people could hear loud enough to start taking notice, no, there was not much. Audible neither in the MSM, nor the business and financial media. Those who spoke out were easily marginalised, which means that the majority of economists did not accept their views as serious, or at least were not willing to join their voices in warning. If enough of them had done so... it still might not have changed the face of things, but today we could fairly say "the economists did try to warn us".