Watching the markets these days is like looking into the seven stages of grief – shock, denial, anger, bargaining, depression, testing and finally acceptance. Obviously, we have not yet reached the final stage. This is not about a coronavirus – it was simply the occasion for the correction that many analysts had long anticipated. The United States is in its longest economic recovery cycle in history, amid piles of debt around the world, declining credit quality and decades of low interest rates that have pushed asset prices to volatile levels.

The reluctance of investors, politicians and central bankers to accept this is not just an example of the natural human tendency to defer pain. Rather, it is something scarier and more real. The truth is that the survival of the US economy now depends on asset bubbles.

This was quantified in the recent issue of financial analyst Luke Gromen’s weekly “Forest for the Trees”. Consumer spending represents about two-thirds of the US economy. But spending patterns aren’t just based on people’s income. Our personal consumption is also linked to the expectations of wealth held in assets such as stocks and bonds.

It is amazing how completely dependent on the appreciation of these assets is the state of the Americans. Luke Gromen estimated that net capital gains from stocks plus taxable income from individual retirement accounts equaled 200% of annual growth in personal spending in the United States.

This does not necessarily mean that people withdraw money from their retirement accounts to buy disinfectants, bottled water, and face masks. But according to Luke Gromen, this means that US gross domestic product “cannot mathematically rise if asset prices fall”.

No wonder the US Federal Reserve recently cut its base interest rate by 0.5 percentage points. This move was made with the perceived risk of scaring the market – and it did. The S&P 500 dropped nearly 3% the same day. But it was estimated that there was a greater risk of inaction.

Central bankers are smart people. They know they cannot deal with a pandemic or political dysfunction through monetary incentives. But in the US, more than anywhere else, they have found themselves in the unenviable position of managing an economy that, over the last few decades, and especially since 2008, has depended on low interest rates to drive up asset prices. This, in turn, made it less obvious to consumers (and voters) that the average real weekly earnings for the lower 80% are roughly at the 1974 level and that the things that make people in the middle class are health, education, and housing – became inaccessible.

Seen in this light, President Donald Trump’s cunning attempts to equate Wall Street’s wealth with that of the country as a whole leave an unpleasant feeling. The value of the S&P 500 is a lesser estimate of the health of US companies or consumers than of the wealth of several tech giants and the value of tax cuts from 2017, which is two-thirds of the 2012 corporate profit increase.

But stock appreciation represents a huge share of the income tax paid by the top 5% of employees, who provide 60 percent of income tax. Given the importance of rising asset prices for both tax revenue and GDP growth, it is difficult to imagine that the Fed will not continue to cut interest rates indefinitely. Live by the market, die for the market.

It should not have happened, and this situation did not develop overnight. Since the 1970s, the United States has little by little built an economy that is dangerously dependent on the vagaries of Wall Street. It is the result of changes in policy caused by both Democrats and Republicans.

Among them is the 1982 rule that allowed the redemption of shares under certain conditions, although this was once considered market manipulation. Also, the favorable tax treatment of stock options, which allowed already wealthy people to take advantage of the rising valuations of the companies they work for. The most fundamental change was the shift from defined benefit plans to defined contribution plans, which tied the future of so many Americans to the volatile state of the market.

All this was underpinned by the myth that stock prices are the perfect indicator of what is happening inside a company and ultimately in the economy.