Such caution seems especially warranted with regard to the sharp rise in equity prices during the past two years. These gains have obviously raised questions of sustainability.
I cannot conceive of a politically feasible solution to this problem which will overdo cutting the deficit, where overdoing means harming the economy. It might be technically possible, but it is not realistic.
We may be in a rapidly evolving international financial system with all the bells and whistles of the so-called new economy. But the old-economy rules of prudence are as formidable as ever. We violate them at our own peril.
Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities.
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