If the average American worker had any economic literacy, they would look at this chart and scream, "I've been getting royally screwed since 2001!" Capitalism was not supposed to work this way--as the workers become more productive their wages fall. But of course as wages fall and layoffs grow, the working class is well aware that they can no longer borrow from their home equity or their ten credit cards and so they cut back on discretionary spending. This means that our ten years of overcapacity in what's left of our industrial plant will get worse

Ben Bernanke says the recession is over, but he is wrong.

The so-called underemployment rate (which includes people whose hours have been cut, and those working part-time for lack of full-time positions, along with the jobless) reached 17 percent, the highest level since the government began tracking it in 1994.

Think of what 17% real unemployment means. It means that thousands of retail businesses will limp through Christmas on a wing and a prayer and then shut down. It means that state and local tax revenues will fall even further leading to more School and University layoffs. ultimately American's will be less prepared to compete, because they will be less educated.

Since 1980 politicians of both parties have preached the gospel of globalization--the ability of American multinationals to move their financial and physical resources anywhere on the globe to get the best return. For a while we were able to mask the hollowing out of our domestic industrial base with the fantasy that we would export our services all over the world and that the financialization of the American economy would make up for the shortfall in our industrial output. And now we are reaping the whirlwind of that bankrupt notion. Yes we have poured trillions into Wall Street banks to restart the casino economy, but the average American isn't buying it. She wants to pay off her credit cards, not borrow more. The small businessman does not have enough orders to need to borrow money. And as a country, the only durable good we make that anyone wants to buy are weapons of war.

A couple of weeks ago Gordon Crawford, the most savvy media investor I know participated in one of my "Art of the Long View" seminars. He said that if you masked the name of the countries on a chart of exports, borrowing, industrial output, etc you would think the U.S. was a developing nation and China was the developed nation.

We are in a desperate bind, trapped by conventional thinking. If we look like a developing nation, perhaps we need to seed an industrial base like a developing nation would. That would mean both tax breaks and subsidies for companies who bring their manufacturing back to America or build new plants here. That would mean favoring American manufactured solar cells and wind turbines over Chinese and German imports. I can hear all the free trade economists screaming "No, no", but when the real unemployment rate hits 21% next year, what will be their answer to the American jobs crisis?

In a speech in 2002 to the National Economists Club, Ben Bernanke, (then a Fed Governor) tried to distinguish a deflationary recession, from the garden variety.

However, a deflationary recession may differ in one respect from "normal" recessions in which the inflation rate is at least modestly positive: Deflation of sufficient magnitude may result in the nominal interest rate declining to zero or very close to zero. Once the nominal interest rate is at zero, no further downward adjustment in the rate can occur, since lenders generally will not accept a negative nominal interest rate when it is possible instead to hold cash. At this point, the nominal interest rate is said to have hit the "zero bound."

Today the nominal interest rate has hit the "zero bound". Bernanke's solution in this speech was to "turn on the printing presses" and flood the system with dollars. This in effect is what he is doing today. He is trying to inflate another bubble, because that seems to be the only solution to an American economy that no longer produces anything that other countries will pay for (we produce lots of movies, music and videogames, but they are all stolen, not paid for).

In Andrew Ross Sorkin's wonderful telling of "Wall Street's Near Death Experience" in the new Vanity Fair (not online yet), you get a true sense of Benanke, Paulson and Geithner in total panic. They have no idea what will solve the crisis so they are going in every direction at once, grasping for a lifeline. From the outside in September of 2008, they seemed cool and collected, but in reality they were puking (literally in Paulson's case) from terminal nervous exhaustion. They didn't have a clue.

Today we are not about to witness the wholesale destruction of the financial system that almost occurred one year ago. But Bernanke's worries about the deflationary spiral that hit Japan in the 1990's (and still affects it today) are worth hearing.

That this concern is not purely hypothetical is brought home to us whenever we read newspaper reports about Japan, where what seems to be a relatively moderate deflation--a decline in consumer prices of about 1 percent per year--has been associated with years of painfully slow growth, rising joblessness, and apparently intractable financial problems in the banking and corporate sectors.

I know that Larry Summers and Tim Geithner seem cool and calm. I know that Harry Reid, Mitch McConnell, Nancy Pelosi and John Boehner don't really believe we are still in a financial crisis. Either they are all good fakers for the camera or somehow they think the good old American consumer is going to go back to their old ways, max out their credit card and get the mall economy rolling again. This is a fantasy and until we face facts that we have to rebuild an American manufacturing and exporting economy that can put America back to work we will remain prisoners of the globalization fantasy.