ebear

We actually agree on a lot of issues. There are many sectors of the economy that are drastically overpriced.

The financial sector is disproportionately large.
The housing sector is overpriced.
The general stock market with falling earnings is not a screaming bargain even today after the drop.

agreed

The fed is fully aware of what the problem is and I believe they are trying to engineer a 70’s style stagflation. This they believe will over a few years solve their problems and is preferable to the more drastic alternatives.

OK, here I disagree. The Fed may think they understand the problem, but my contention is that no one does - not them, not Wall St. not the academics, and certainly not the pundits that flood the web with their prognostications. Everyone's working on their own little piece of the puzzle, but no one sees the whole. The reason is more fundamental than self-interest (eg: the Fed will never admit that they are the problem) and has more to do with the lack of a functional paradigm. It would take a whole essay to describe this, but the situation is comparable to the crisis in astronomy that led to the Copernican Revolution, and by analogy, shares features of Heisenberg's uncertainty principle, in which the act of measuring something changes the thing being measured.

I'm almost afraid to get into this topic since I really don't have the answer - just a different perspective on the problem - something I've been working on for years. Still, before you can make any progress in a discipline you have to ask the right questions - questions which typically appear as a result of a failure of existing models - a problem which is very evident in Economics.

I'll try to put more flesh on these bones in a few days - right now I'm rather busy with the pagan tree festival and the ton of snow that just fell on us. I'll just say that when analyzing markets and the economy, I try to draw on material from outside the sphere of economics, one of my key inspirations being the work of Douglas Hofstadter, especially his book Godel, Esher, Bach.

http://en.wikipedia.org/wiki/Douglas...

OK, more later!

ebear