The role of the wealth effect took on added importance in the current economic recovery. With jobs and real wages under extraordinary pressure, there has been an unprecedented shortfall in the cyclical rebound in this key wages and salaries component of personal income. As job growth has picked up in recent months, that gap has started to close. But through April 2004, real wages and salaries had still risen less than 3% from levels prevailing at the recession trough in November 2001; that's far short of the nearly 10% gains that had occurred in the first 29 months of the preceding six cyclical recoveries. This translates into a shortfall of $280 billion in "missing" real personal income. In such an income-short recovery, there is an added urgency to draw on the wealth effects as a supplemental support to spending. In the asset economy, the idea of cutting back on discretionary consumption - a classic pattern of the American business cycle - had also become passé. America's policymakers have joined in celebrating the miracles of the asset economy. The Federal Reserve has taken the lead in this regard, providing the rock-bottom interest rates that have taken asset markets into uncharted territory. But the Great Enabler has now created the ultimate moral hazard: overly-indebted consumers and overly- exposed financial institutions, both of which are exceedingly vulnerable to a long overdue normalization of monetary policy. The fiscal authorities have also been seduced by the siren song of the asset economy. Income-short consumers have drawn ample support from open-ended tax cutting and the massive government budget deficits such initiatives have spawned. That takes us to one of the greatest pitfalls of the asset economy - ever-widening twin deficits. Increasingly, asset-based saving has come to be viewed as a substitute for the income-based impetus to consumer demand. This has resulted in an unprecedented shortfall of domestic saving: America's net national saving rate - the combined saving of households, businesses, and the government sector (net of depreciation) - fell to a record low of about 2% of GDP in 2003. Lacking in domestic saving, the US has had to import surplus saving from abroad and run massive current account and trade deficits to attract that capital. The record current account deficit of about $580 billion just reported for 1Q04 — 5.1% of GDP — is a grim reminder of how serious these deficits are. Such twin deficits are part and parcel of the asset economy. That also underscores the important role that foreign investors - especially foreign central banks - have played in funding the excesses of a saving-short, asset-long US economy. The world is hooked on America's asset economy as never before.