Our negative personal saving rate indicates that the wealth effect is alive and well. The latter has unquestionably been a key factor in the rise in domestic demand, which despite productivity improvements has exerted increasing pressure on labor markets. Thus, should equity markets retrench, consumer and business investment demands would, doubtless, weaken considerably.
A more distant concern, but one that cannot be readily dismissed, is the very condition that has enabled the surge in American household and business demands to help sustain global stability: our rising trade and current account deficits.