causes of stock market contraction

[Natriley@xxxxxxx]

	Yesterday's New York Times (8/12/98 deflation p. D1) reports that "the most
troubling view" agitating investors is "that for all the Federal Reserve's
concerns about inflation, it could be deflation that ultimately undoes the
United State stock market.   As investors absorb the possibility of another
round of Asian devaluations, so too do they do they begin to comprehend what a
deflationary spiral could bring."

	E. Han Kim Professor of Finance and International Business at the University
of Michigan Business School, and the Director of the Mitsui Financial Research
Center believes that Japan's economic problems are spreading and will cause
deflation.  Other observers are predicting a devaluation of Chinese currency
before next March.

	The articles warns "few investors know what to expect or how to measure"
deflation which has not happened since the 1930s."

	Economists, however, "do know that deflation plays out slowly and insidiously
and that the Federal Reserve Board chairman, has little in his arsenal to
counteract it. ... in a deflationary environment the Fed has few levers to
pull."

	The reporter states quite erroneously based on my skimpy knowledge that --
"The only way to get out of a deflationary period is to contract the supply of
goods.  This means shutting plants, laying off workers -- anything that will
remove excess supply from the economy and restore companies ability to raise
prices of their goods."

	Isn't Keynes the man who designed policies to cure deflation.  Doesn't this
news means that students of his views will be part of a solution?