All signs indicate that 2004 will be a great year for the U.S. economy. Real growth could exceed 4%, and the unemployment rate will decline substantially. Interest rates are likely to remain near current levels, and inflation will stay around 2%. Now what could possibly be wrong with that scenario? Some economists asked the same question back in 1972. That year, you may recall, the combination of stimulatory fiscal and monetary policy and the devaluation of the dollar -- plus wage and price controls -- also generated superb growth. Two years later, though, the economy plunged into the most severe decline since the Great Depression, and the situation did not really get straightened out for another decade. Of course there are some differences between now and then, the greatest one being that no one has even suggested that wage and price controls be imposed this time -- except perhaps on medical care. Oil prices are already fairly high, and another quadrupling in prices next year is out of the question. Even the pessimists don't see inflation increasing very much over the next several years. But how about the rest of those factors? The federal budget deficit was pretty hefty in fiscal year 1972 -- a whopping $23 billion. All right, the economy was a lot smaller then. But the deficit was roughly 2% of GDP (or GNP, as it was known then), compared with an estimated 5% for the current fiscal year. One could note the current deficit-to-GDP ratio isn't as large as the 6% ratio in fiscal 1983 and argue the situation then eventually had a happy ending. But it's not quite that simple. The huge deficit in the mid-1980s did slow real growth in 1985 and 1986 by hampering capital spending and exports, and the economy regained speed only when interest rates started to decline. Granted the federal funds rate target was around 12% before it started falling, which boosted investment, while the sharp decline in the dollar boosted exports. But with the funds rate target at 1% these days, we can't look forward to that kind of boost in future years. The reality of 1972 is that the U.S. economy was living on borrowed time, with growth artificially stimulated by what at that time were enormous budget deficits, interest rates artificially held below the rate of inflation, and a 20% devaluation of the dollar. Now ask yourself: Doesn't this have a familiar present-day ring? Eventually, when the temporary stimulus from current low interest rates, the tax cuts, and the lower dollar wear off, there will be nothing left in the afterburners. Growth will not die, because the economy will continue to limp along at 2% growth, but there'll be no more boom. The optimists continue to argue that with inflation remaining near current low levels, so will interest rates. I don't think so. Eventually the markets will start to worry about the threat of higher inflation -- particularly if the economy starts to grow rapidly -- and will push bond yields higher, causing the Federal Reserve to tighten the money supply. But suppose Chairman Alan Greenspan not only keeps rates low but also manages to convince financial markets that the threat of inflation no longer exists. Even then, the economy can't continue to grow at superheated rates because the stock market is not going to rise 75% every year (the increase in the Nasdaq from October 2002 to November 2003). If you believe that can continue to happen and Dow 36,000 is right around the corner, we part company. If, on the other hand, you think the stock market is already overvalued and probably will not rise further in 2004 and will stagnate in 2005, then the U.S. economy is indeed living on borrowed time. Michael K. Evans is chief economist for American Economics Group, Washington, D.C., and president of the Evans Group, an economics consulting firm in Boca Raton, Fla.