How many more bubbles can the US economy throw up before it sinks?

"Statistics showing sharply rising stock sales by corporate insiders over the past couple of months," Dr Kurt Richebächer writes in his July 2003 Letter, "suggest that the bosses of Corporate America regard the current stock rally as a great selling opportunity. We happen to share this view."

In this, there are hints of rats and sinking ships. When I asked Dr Richebächer when he expected the ship to sink, he said: "By the end of calendar year 2003."

So, when the northern hemisphere returns from its summer holidays in September, not only will the "ridiculous euphoria" of the "new paradigm" economy of a few years ago be a mere distant memory, but even the present "striking aura of optimism" in the United States might already be behind us.

That optimism, which has kept the bull count at 58.7 per cent and the bear count at only 16.3 per cent, has been founded - or to maintain our metaphor, should we say has been buoyed up to the heights? - by a series of bubbles. The stockmarket bubble has been followed, largely thanks to the guiding genius of Fed Chairman Alan Greenspan, by a housing bubble, a mortgage refinancing bubble and a bond bubble.

Sustained only by that "striking aura of optimism," the stockmarket bubble, which lost $4,880 billion, or 54 per cent of its peak value between 1999 and 2001, is now only waiting - if bubbles wear shoes - for the second one to drop.

The housing bubble increased the marketable value of tangible assets from 1999 to 2002 by almost $3,500 billion; but builders are now said already to be holding several months of past production; and inventories continue to rise.

The mortgage-refinancing bubble must also have just about run its course, if only because mortgage rates can probably not fall much further - or at least significantly below their present all-time-record lows.

Looming above all is the fearsome bond bubble whose "influences," Richebächer says, "are pervading the whole economy and the whole financial system, and its bursting may have apocalyptic consequences".

Will the bond bubble indeed burst? "All that is needed to prick the bubble is for new buying to cease because long-term rates have become too low. Soon, more and more players will close their position, driving long-term rates upward."

That must be a gravely worrying - indeed, terrifying - forecast.
Is there some other bubble to sustain the American - and, ultimately, the world economy?

The boosts to the American economy have already been huge, with cuts from 6.5 per cent to 1.25 per cent in the Federal funds rate in just two years; and the conversion of a Federal surplus of $295 billion in 2000 to a DEFICIT of between $400 and 500 billion this year. Stimuli of these enormous dimensions, including financial and non-financial credit totalling $4.4 trillion, have scarcely been enough to hold up consumer spending - which has been almost the sole support of U.S. GDP growth in recent years.

The fundamental problems of the United States economy remain: Low savings and low fixed-capital public and private investment; miserable profits; and what is probably the single biggest drag on the US economy, the huge external trade deficit, now between $400 and $500 billion.