“It has been counted and counted, weighed and divided” said the writing on the wall at the Biblical feast of the doomed Belshazzar. Sounds like an economic forecast to me, in particular one for the thoroughly unpleasant 2005 that seems likely to unfold.

This is not the view taken by Wall Street. The Dow Jones Industrial Average is within 1,000 points of its all-time high, and the Standard and Poors 500 and Nasdaq indices are both trading at their highest levels since the attacks of September 11, 2001. Google is trading at more than twice its already inflated $85 per share offer price. The company has recently agreed to archive five major academic libraries on the Internet, which is good news for impoverished scholars, but anyone who thinks archiving university libraries is going to justify a market capitalization of $51 billion probably bought Pets.com as well.

In saying the writing is on the wall for the U.S. economy, I am not without company. However, most of my companions in pessimism thought Michael Moore’s “Fahrenheit 9/11” a cinematic masterpiece, and that George W. Bush stole the election by arranging for Diebold voting machines to print 130,000 fake ballots in Ohio. In other words, to put no finer point on it, they’re fruitcakes. The lack of solid, well paid, Republican-voting company for my views is certainly a concern, but it won’t be the first time!

It’s perfectly possible for Wall Street to become irrational, and it happens frequently after lengthy periods of very low interest rates such as we have seen in 2001-04. With a real Federal Funds rate that has been below zero for the past 3 years, lenders have in essence been paying borrowers to take their money. Naturally, borrowers have availed themselves of this privilege, particularly in such areas as the housing market, where the run-up in prices and activity that we have seen since 2001 has been due to interest rates far more than to economic conditions.

To illustrate Wall Street’s irrationality, when the Chief Executive of Fannie Mae, Franklin Raines, was forced to resign this week as a result of the $9 billion accounting errors/frauds at that company, the stock went up in spite of the fact that the fraud had wiped out nearly a third of Fannie Mae’s capital and will force it to sell more than $300 billion of mortgage backed securities in order to return within its already inadequate mandatory capital ratios. There is NO chance that this scandal is good news for Fannie Mae, or for the housing market in general, propped up as it has been by excessively low interest rates and a New Deal-designed home lending system that makes no economic sense.

There are such a variety of things that can go wrong in the U.S. economy:

— The federal budget deficit, $413 billion in 2004, is likely to rise again in 2006, even given no recession and an outburst of fiscal discipline by Congress and the George W. Bush administration, because that’s the year the new Medicare drug entitlement kicks in. In 2008, the baby boomers start retiring, shortly after which the phony Social Security surpluses which have propped up U.S. public finance go into reverse.

— The U.S. trade deficit, of $650 billion per annum and climbing, is currently being financed by Asian central banks, but they are pretty clearly getting tired of holding dollar assets and seeing the value of those assets decline. Once they start selling, the volume of sales will devastate both the dollar’s value and U.S. interest rates.

— Oil prices hover in the high $40s per barrel, and are showing no signs of dropping rapidly below $40. The U.S. economy has nowhere near adapted to oil prices at this level, which remove at least 1 percent of GDP in purchasing power from it compared with their level in 2003. It’s not helpful, either, that the major beneficiaries of the rise are Vladimir Putin’s ex-KGB cronies in Russia, the Saudi Arabian religious oligarchs and Hugo Chavez’ regime in Venezuela. These people are not our friends!

— Long term interest rates, around 4.2 percent for 10 year Treasuries, are at record lows in real terms, as inflation shows every sign of creeping back up again; we are now told that inflation around 3 percent is perfectly acceptable – more or less true, but not the story we were being given a year ago. At some stage, long term rates will rise sharply, housing values will decline, and the over-borrowed consumer will suffer a tsunami of loan defaults

— Junk bonds, which always flourish when there’s free money around, enjoyed record levels of investment in 2004, and are trading at record low “spreads” above Treasuries. Even on Wall Street, you can find few who don’t think a crisis in the junk bond market is inevitable.

— The Financial Accounting Standards Board has reaffirmed its decision to require expensing of stock option costs from June 2005. Either that decision will stand, in which case a number of names in the tech sector, notably Intel, Cisco and E-Bay, will find their reported earnings decimated, or Congress will force the FASB to revoke its decision, in which case it’s difficult to say why any foreign investor should invest in a stock market where such political chicanery is permitted – much better to go off and buy Russian shares, and hope your investments’ managers are on good terms with Putin.

— Outside the United States, Western Europe is showing no effort towards economic reform (and Britain has its own imploding housing bubble to cope with) China is a banking crisis waiting to happen and Latin America is heading steadily in an anti-market direction, to the extent that no sane person should invest there. At some stage, these worldwide problems will affect the U.S. economy.

— The administration and Congress are determined to shut down the embryonic genetic engineering industry. Thursday’s announcement of the successful cloning of a pet kitten, at a cost of only $50,000 (OK, a lot for a kitten, but not a lot for a major scientific advance) is just another advance towards the activity of human cloning, which rouses hysterical opposition among Christian-educated politicians. When the genetic engineering industry has moved offshore to non-Christian Asian countries, owing to legal harassment in the United States, the stock market may wake up to the fact that the U.S. is no longer where the most important new industries are generated.

Some of these dangers are short term, some may be delayed for several years, even a decade or so. But the chance that NONE of them will hit us in 2005, causing a sharp reappraisal in the stock market with all the economic ill-effects that would bring, must be more or less zero.

The wall doesn’t just have a few words of writing, it is entirely covered in a host of warning graffiti, like the side of a 1970s New York subway car. Wall Street traders and others who ignore it will go the way of Belshazzar.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.