The warning lights flashing along Main Street, USA

Inflation, rather than the next crash, could be the heffalump stalking the world economy

JEAN BAUDRILLARD, the French intellectual, does not leap to mind for his financial punditry. But lately, his claim that financial capital has entered the realm of "hyper-reality", that it whirls chaotically around the globe having next to no impact on our real-life economies, has gained some resonance.

This week, the latest victim of the crisis that started in Asia more than a year ago has been Brazil, which unexpectedly devalued its currency on Tuesday and thereby set off a day of panic in London and New York. Yet as each wave of the financial crisis crashes over the markets, it appears to wash harmlessly over the American and British economies. While ordinary Indonesians and Brazilians certainly suffer, unprotected by the Baudrillard effect, recession on Main Street, USA remains a strangely distant threat. Although growth in the UK is slowing, here too, if there is a recession at all, it looks like being short and shallow.

The Tweedledums of punditry say it will continue to be held at bay by the fundamental vigour of the US economy which, in turn, will shelter the UK and others from the worst of the global storm. Entrepreneurship, new technology and the skill of Alan Greenspan, head of the Federal Reserve and chief economic wizard, mean that financial meltdown in far-away countries will not harm the US.

The Tweedledees insist that the longer the US economy and stockmarket continue to thrive on nothing more than hot air, the harder will be the inevitable crash. Each wobble on Wall Street is like that of a tightrope walker progressively losing his balance before inevitably teetering to the ground.

So, either global financial capitalism is in its death throes, or it is demonstrating its ultimate success by safeguarding from all the turmoil the one economy to have embraced it properly. It's a hard one to call.

So far, the key facts are on the side of the optimists. Low unemployment, low inflation, mutual fund balances boosted by high share prices - the economic measures that people really care about - have convinced US consumers that all is well. Confidence is high, so they are shopping cheerfully, buying houses, starting up companies and hiring staff if they can get them. The virtuous circle that sustains a thriving economy is intact.

And certainly, there is no question that the US is out on the frontier of technological advance, with an impressive capacity to turn weightless knowledge into productivity, sales, profits, jobs and wages. There is, to some extent, a "new economy" that has not been fully measured by the old statistics. The longest expansion since the boom fuelled by the Vietnam war has also been the most stable, with seven years of steady growth and prices.

The reason why anybody is pessimistic about the future in these favourable circumstances - apart from a natural human inclination to think that the good times cannot possibly last - rests on a series of figures that fascinate economists but mean little to anybody else. These figures can be compared to the pressure gauge on a boiler: it may not have blown up yet, but with readings like these it is only a matter of time before something blows. And the bigger the build-up of pressure, the more violent the ultimate explosion is likely to be.

There are several warning lights flashing at present. Share prices have soared so high that companies cannot possibly, it seems, deliver the profits and dividends to justify them. Ratios of share prices to expected earnings or to yields on alternative investments are at all-time records. It is, after all, two years since the revered Mr Greenspan first warned about the possible adverse effects of the "irrational exuberance" in the stockmarket.

More ominously, the US is spending well beyond its means. Household spending is higher than household income. The private savings ratio has turned negative, with the gap financed by borrowing. This borrowing is underpinned by the stock market, so if the bubble bursts it will have a knock-on effect. Calculations by Phillips & Drew, the investment managers, suggest that to keep US growth at its long-term trend rate, household borrowing - and therefore stock-market wealth - would have to increase exponentially from now on.

The excess spending is also spotlighted by a huge balance of payments deficit. High spending by US consumers and businesses is sucking in imports to keep up with the demand. To pay for the imports and finance the trade gap, the country is borrowing huge amounts of foreign capital, making what was once the world's biggest owner of foreign assets its biggest debtor instead.

As long as Wall Street continues to rise, foreigners are happy to park their money in the US. But, once again, to anybody prone to looking on the gloomy side, a lot seems to rest on a fragile bubble of confidence. Can American shoppers, borrowing ultimately from foreign investors, sustain the whole planetary economy? Only as long as foreigners trust the Americans to carry on shopping.

This all sounds a very convincing case for getting worried. The trouble is that the pessimists have cried wolf not twice, not three times, but repeatedly for the past two years. Not surprisingly, they have stopped winning new converts the more the US has thrived and the deeper they have sunk into their depression.

With the financial world dividing into Tiggers and Eeyores, it is perhaps hardly surprising that stockmarkets have been so volatile. No sooner does a shock wave from Brazil or Asia give the Eeyores a chance to say "We told you so", than the Tiggers bounce in because they see a good opportunity to buy shares at a lower price, sending the market straight back up again.

They are probably both partly right. When financial bubbles burst, it is always pretty spectacular. A Wall Street "correction" will mean a dramatic fall in share prices. But adjustments in the real economy occur much more slowly, and often in unexpected ways. The bit that gives way under the pressure could turn out to be a surprise.

Indeed, conventional economics predicts that the result of a debt-financed spending boom and a yawning balance of payments deficit is higher inflation. This is the last thing anybody is worrying about at the moment. Yet there are early signals of it in earnings growth and the prices charged for services. After all, America has run out of workers, so wages are bound to be bid up. Inflation, rather than the next great crash and a serious depression, could turn out to be the heffalump stalking the world economy.