FIRE Economy

DEFINITION of 'FIRE Economy '

A sector of the economy composed of finance, insurance and real estate - hence the acronym, FIRE. Businesses that make up the FIRE economy include banks and credit unions, credit card companies, insurance agencies, mortgage brokers, investment brokerages, real estate agencies, hedge funds and more. The FIRE economy is a major contributor to the overall U.S. economy.

BREAKING DOWN 'FIRE Economy '

The FIRE economy has grown significantly since the 1980s and has accompanied the decline of the U.S. manufacturing sector. It generates revenue largely through rising asset prices and interest on debt. When asset prices suffer, as they did during the housing bubble and financial crisis of 2008, the FIRE economy suffers. When the FIRE economy suffers, the rest of the economy can experience debt defaults, failed businesses, increasing unemployment, reduced demand and debt deflation. The ripple effect that the FIRE economy’s decline had on the rest of the economy illustrated how important the finance, real estate and insurance sector has become. Even non-FIRE businesses had difficulty continuing operations because of limited access to credit and reduced consumer demand.

The FIRE acronym has been used since at least 1982, when it was printed in a Washington Post newspaper article describing job growth in New York City. Within the United States, the FIRE economy is particularly important in New York City, where many financial companies are based. 

The FIRE acronym was also used in a U.S. Census Bureau classification system first employed in 1992 for the economic census, which collects data on the structure and functioning of the U.S. economy. The economic census classified as part of the FIRE economy depository institutions; nondepository credit institutions; insurance carriers, agents and brokers; real estate businesses; holding and investment offices; and security and commodity brokers, dealers, exchanges and services. 

 

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