The stock market bubble and the Federal Reserve

That there was a stock market bubble in the late 1990s is not in doubt. What has been in doubt is the role the Federal Reserve played in fomenting the bubble.

The stock market bubble in the late 1990s was primarily an Internet bubble. But non-internet stocks too were swept in the euphoria, such that long after the bubble burst, valuations of most stocks in the United States remained excessive. This was a point I repeated in a few articles -- Market rebound: Looking in the right market, What's the economy got to do with stocks?.

Many people have blamed the Fed for encouraging the bubble. I happen to be one of those who believe that the Fed played a major contributory role in promoting the bubble. I gave my reasons in Alan Greenspan and the stock market bubble and An asset bubble adds to deflation risk.

To this day, Fed chairman Alan Greenspan continues to reject criticism that he contributed to the bubble. I suspect history will not agree with him.