Leading Article: The market's rise is tomorrow's trouble

SO IT'S not doom and gloom, but boom and boom after all. The American economy, it seems, has shrugged off fears of recession and is set for "surprising growth" this year. Between July and September, gross domestic product grew by a healthy 3.9 per cent, according to the US government. More strikingly, the US stock market rally has brought the Dow Jones average back up to levels of this summer. Is it time to crack open the bubbly?

What happened to imminent depression? Well, the American public just wouldn't believe in it. Consumers and traders saw that the Federal Reserve Board wouldn't let their financial system collapse once it had rescued the biggest speculators and their hedge fund. A few interest rate cuts followed and public confidence surged back.

But keep the bubbly on ice. Economic growth (and especially the stock market) behaves like a bubble. To avoid a sudden explosion, some way must be found to let the pressure out: but there is no way to prick a bubble slowly. Instead, the best hope is to contain growth. Thus the Fed was not too worried that the recession in Asia and Russia would have "contagious effects" in the US: if it helped to slow growth, then, in that respect, it would be welcome.

But it hasn't. In the short term, that's good news: US growth might help Asia export its way to recovery. But in the longer term, it makes adjustment even harder. For the first time since the 1930s, American families have become net borrowers. The further they get into debt, the bigger the shock when - not if - the bubble finally bursts. Just as Japan failed to deflate its speculative bubble in the 1980s and later ran into deep recession, so failure to ease growth now stores up trouble for the future. The Fed must now try to cap any sense of euphoria: if that means no more cuts in interest rates, or even a rise, then so be it.