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Question now is how long, how deep and what will be the economy's condition after the recession

As we have warned for several years now, the main engine of US growth was the soaring new debt taken on by households and federal government. The after-tax incomes of all Americans (including Oprah and Tiger) increased by a total of just $3.0 Trillion over the last seven years as the Federal debt soared by $3.5 Trillion, to $9.2 Trillion. All the gain in after-tax incomes since 2001 -- when the Federal budget was near balance -- is borrowed just from tax cuts and war spending.

Recall that the federal debt first reached $1 Trillion only at the end of 1981 -- after 200 years of Depressions, World Wars, a Civil War, many regional wars, a war on poverty, massive public works programs, a space program, OPEC price increases, run-away inflation and so much more.

But even the explosion of Federal debt pales beside American’s personal debt that has rocketed to over $14.2 Trillion, including $6.9 Trillion in debt added just since 2001! Household debt has soared by 95% in just the last 7 yrs. Interest and fee payments are taking a record share out of household budgets with disproportionately dire effects at lower income levels. For the past three years, households have NO current savings to cushion against any type of health, accident or job problems.

Now in the 9th consecutive year with the US economy growing slower than the world economy, the Current Account deficit is finally easing back from its record set in 2006. Still, this massive shortfall of production and earnings means that the US has borrowed from abroad or sold assets worth over $4 Trillion since 2001 and must still attract $2 billion per day -- net.

This is the key context within which to consider the current credit crisis that the debt industry and their unregulated policies have created. The problem the US economy now faces is not simply of absorbing all the bad debt from the voodoo financial "innovations" of the past generation. The much more difficult task is finding another engine to replace the vast amounts of new debt that has driven the US economy for so long.

Don't expect that pulling out of the sharp downward spiral that financial interests and their retainers have created will be quick or painless. The manufacturing sector is now severely hollowed-out and advantages gained since WWII are lost from years of ideological insistance that unregulated commerce and massive trade losses are "free." Now the competitive challenges from very smart and hard-working Chinese and Indians, working with the best modern equipment and enormous financing, is quickly spreading to the professional services.

Of course there is always the possibility that new "confidence" schemes again can be created and sold that will preserve the debt engine for a bit longer. Certainly there are many powerful interests that are trying and NO ONE wants them to fail. Still, markets DO matter and for too long they have been abused by the outrageous, self-interested schemes of the powerful debt industry. Odds now are that a recession started in December 2007 and the chances are growing that it could be very severe and long. The country needs a strong, short-term stimulus plan targeted at the most direct victims of debt industry schemes. As important, we urgently need a powerful new set of industrial and trade policies that will restore production -- rather than debt -- as the economic engine driving sustainable prosperity.