When Markets Need Help in High Places; Japan's Bolstering No Longer Does the Trick
The Japanese have done it for years. Whenever their stock market looked on the weakish side, the government would do something to prop it up.</br></br>And it worked. Stock prices soared to outrageous levels in the late 1980s as confident investors figured that they couldn't lose if the government was their not-so-silent partner.</br></br>But the game didn't go on forever. Stock prices in Japan have been falling since 1989 and have been in a free fall for the last few weeks. The speculative bubble that the Japanese had created in their stock market popped, and the mess that it made has been felt throughout that society.</br></br>When stock prices fell sharply two weeks ago, the Federal Reserve Board pulled the market back from the brink with a surprise quarter-point reduction in the rate it charges banks to borrow money.</br></br>There were other justifications for the cut. The nation's economy seemed to be slowing again. The money supply had declined for several weeks. And the day after the rate cut was announced the government was going to report an unexpected pickup in inflation that might stall any future rate drops.