When The Economist sounded the alarm about America's bubble economy in the late 1990s, what concerned us most was that share prices were no longer just a mirror that reflected the underlying economy, they had become its major driving force: soaring share prices encouraged a borrowing and spending binge. Although the stockmarket is lower today, in some respects the "economic bubble" has still not burst. The value of households' total wealth (in financial assets and homes) is well above its level before share prices started to slide in early 2000-and the American economy is more dependent than ever on asset appreciation. America's economy has survived the bursting of the bubble better than had been expected largely because policymakers have pursued what is possibly the biggest fiscal and monetary stimulus in history. This week, even Alan Greenspan, chairman of the Federal Reserve, expressed concern about spiralling deficits. Tax cuts have given consumers more to spend. More importantly, historically low interest rates have inflated the prices of homes (and more recently shares again), encouraging households to pile up more debt.
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