Stock market analysts are very superstitious about a possible future recession of the economy, and reassure themselves with optimism by saying that if we don't think abut the big R, then the recession will not come. But we cannot fool ourselves for ever, and we must realize the existence of financial bubbles in stock and real estate prices, that is the artificial overpricing of stock and real estate which occurs when too much money chases too few assets.

Economist David Korten notes that since 1980, according to a McKinsey study, the financial assets of the world's largest economies have been growing at two to three times the rate of growth in gross domestic product (GDP). And therefore, Korten concludes that bubbles are everywhere. Further, economist Dean Baker observes that in the last 4 years the ratio of stock prices to corporate earnings has been increasing to more than thirty to one (30 to 1), that is more than twice the historic average of a ratio of 14.5 to 1 over the last fifty years.

The overpriced stock market along with the overprice of real estate is a serious cause of concern, and economists and policy makers should direct their attention to the readjustment of prices in the stock and real estate market.

References

The Difference Between Money & Wealth. How out-of-control speculation is destroying real wealth, by David Korten http://iisd.ca/pcdf/1999/wealth.htm

The costs of the stock market bubble, by Dean Baker, Center for Economic and Policy Research, November 27, 2000 http://www.cepr.net/stock_market_bubble.htm

MacLean's Economic Policy Page, by Brian K. MacLean http://www.geocities.com/brian79/