The congressional compromise drafted over the weekend to rescue Wall Street is expected to fend off a meltdown of financial markets for now. But it won't cure much of what ails the struggling U.S. economy.
Many economists believe the economy is in recession, or so close it's almost an academic question. The compromise doesn't fix that, but it stops things from worsening by calming credit markets, which are vital to corporate America's ability to fund itself with short-term debt.
"People watch the stock market, but that is not the key here. The credit markets are the key," said David Wyss, chief economist for the rating agency Standard & Poor's in New York.
If credit markets respond positively, the gap between the interest on Treasury debt - the safest place to lend money - and other lending rates should narrow. This gap has hurt corporate America's ability to conduct needed short-term borrowing except at extremely high rates.
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If it narrows, the past 10 days' problems may be just a blip on the historical record. If these markets remain in turmoil, there could be more bank failures, and a fast accelerating economic slowdown.
"If history tells us one thing, it's that you cannot let these (modern-day) bank runs go on," said Wyss.
A principal risk for the U.S. economy is that the spate of bad news will feed on itself.
For example, the wave of bank failures and mergers is sure to bring large layoffs in the financial sector, and already computer makers like Dell and Hewlett-Packard plan job cuts in the expectation of a worsening sales environment.
As joblessness grows, the number of delinquent home loans grows. Defaults on car loans rise. More consumers fall behind on credit card payments. Restaurants shutter because of fewer diners, and having fewer restaurants cuts demand for food products. .
For the moment, unemployment stands at 6.1percent, a rate expected to grow when the Labor Department gives September numbers Friday. Today's rate is low by historical standards, but it is up over 2 percentage points since its low in summer 2006.
"All 10 previous occasions in the post-war era when the unemployment rate has risen so much have been associated with recessions," said Michael Mussa, a former research director for International Monetary Fund, in a paper presented Friday on global economic prospects.
Given the sharp gap between the current and potential growth of the U.S. economy, Mussa said that for "practical purposes, this magnitude of an economic slowdown should probably be regarded as a recession - even if the exact timing of its starting and ending points are hard to specify."