The Economist: Bubble warning

http://www.economist.com/opinion/displayStory.cfm?story_id=15213157&source=hptextfeature


The stock market has been labeled as a "forward indicator" of the economy. The unemployment rate has been labeled a "lagging indicator." With the run up in stock prices over the past half-year, some are claiming that the economy is responding to the stimulus and that it is a matter of time before the unemployment rate reciprocates.

This op-ed by The Economist suggests that the economic stimulus by the U.S. government is creating a false indication of a recovery. If indeed the stimulus and the easy money policy of the U.S. Federal Reserve System is inflating stock market valuations, then this suggests that there has not been real economic growth and that there will not be in the near-term future.

Furthermore, a significant retreat in stock market valuations could crush consumer confidence in the economy if 1) the U.S. government keeps pointing at the stock market as a future indicator of the economy and 2) if the American people continue to believe it. A public fooled thrice would hardly believe any actual future sign of economic growth which might, in turn, make any future recovery stillborn.