|
By STEPHEN S. ROACH [Chief Economist, Morgan Stanley]
A year after terrorism dealt a seemingly lethal blow to America, talk of resilience and economic recovery is in the air. The nation's inflation-adjusted gross domestic product has risen for four consecutive quarters following a mild downturn in the first nine months of 2001. While the estimated 3.2 percent growth rate over the past year is subdued when compared with the more vigorous rebounds of the past, the hope is that it's a down payment on bigger and better things to come.
But while Sept. 11 was a defining event for America, it was not a defining event for the economy or the financial markets. That role belongs to the stock market bubble of the late 1990's that finally popped in March 2000. There was far more to the excesses of the 1990's, however, than an asset bubble. The bubble expanded high enough, and for long enough, to have infected the behavior of consumers and businesses alike.
The equity bubble helped to create other bubbles — most notably in the housing market and in consumer spending. Their continued existence poses a serious threat to lasting expansion — and yet, puncturing them raises the grave risk of deflation. This suggests the economy will prove as challenging to America's political leadership as any other issue in the year ahead.
There is good reason to believe that both the property and consumer bubbles will burst in the not-so-distant future. If they do, there is a realistic possibility that the United States, like Japan in the 1990's, will suffer a series of recessionary relapses over the next several years. Yet denial remains deep, just as it was when the Nasdaq composite index was lurching toward 5,000. Few want to believe that this economic expansion may be built on such a shaky foundation.
12:35:35 PM Google It! 
|
