2003 in Stocks: Four in a Row for the Bears

Five Stocks Shine in Dreary Year

Networking: Next Year: Cisco, Juniper and Red Ink

Cisco Shift Gums Up the Works for Rivals

Homeland Security: Firms Scramble to Cash In

Wireless: Pinning Hopes on Shutterbugs

Consumer Debt: Looks Set to Keep Soaring

War Optimists May Face Pricey Surprise

Oil: The Price Outlook Is Clear as Mud

Credit Crunch Could Chew Up Lenders

But the S&P 500 won't fall straight to 700 while the Federal Reserve is conducting a loose monetary policy by slashing interest rates to the sort of lows typically seen only in dire emergencies. The central bank is fighting hard to keep stocks higher to shore up the asset side of people's balance sheets at a time when the personal debt burden -- on the liability side -- is at its heaviest since statistics were kept.

The Fed also wants people to stop saving, because doing so crimps consumption, and low rates help keep money out of savings accounts. Though the Fed's push to make the average guy rely more on flimsy paper asset wealth (such as stocks) over cash savings is deeply harmful in the long run, the central bank can easily work its black magic for a while.

Nothing Gold Can Stay

But there are signs that the market has had enough. The two starkest signs of this are gold's 25% rally through 2002, and the recent collapse of the dollar against the euro. Investors prefer to hold other currencies and the yellow metal over the dollar because they think they'll lose less of their value.

The reason? They can see the Fed is aggressively expanding the supply of greenbacks. And the strong growth in money-supply indicators reflects high growth in loans to individuals, who use the credit to buy houses and cars. That means the credit is being used not to improve productivity, but to boost consumption. And when this lending binge stops, demand will weaken and act as a drag on growth.

So how do economies normally work themselves out of a hole like this? Individuals and companies reduce their debt burdens in a recession. We have had no recession, so there has been no debt reduction. And that means no sustainable growth.