US: Wall Street - Main Street Disconnect

Published in Business Line on Oct 12, 2007

A better title for the article would have been "Dow 14000 - The Illusions of Inflation".

Essentially what is driving the Dow higher is the reduced value of the dollar itself. So inspite of the Economy not doing well (and the Index is supposed to reflect the state of the Economy), the units in which we are measuring this progress, i.e. the Dollar, is losing value at a greater pace and hence we are seeing the increased value of the Indices.

What is explained above would be very easy to observe in hyperinflationary environment but not so very obvious under other conditions. Readers could read an earlier piece i.e "Inflation - The Unusual Suspects" to understand this further.