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Originally published Thursday, August 4, 2011 at 11:10 AM

Jon Talton

Stick a fork in that recovery with risk rising sharply

No wonder this week has had that nauseating feeling of the summer and fall of 2008, as the American financial system wobbled toward near collapse.

Special to The Seattle Times

quotes There never has been a recovery. Just a slowing of the free fall due to massive... Read more
quotes Also Jon -there never was a recovery. Eight post Great Depression recessions saw unem... Read more
quotes Our present continued economic nightmare will be noted years from now when President Ob... Read more

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The Dow Jones industrial average fell nearly 513 points Thursday, more than erasing all the gains for the year. This is real money. Your 401(k) is once again hostage on a down-bound train. If you're lucky enough to have a job, your company's ability to expand and hire is likely gone.

So is the recovery, if there ever was one. Decades from now, historians may classify this period as one long recession or depression.

No, the sky is not falling. Risk, however, is again rising sharply. And much of the damage from the initial Great Recession remains, especially for average Americans and small-business owners.

It's not just about America. Europe's sovereign-debt crisis is threatening to spread to Italy and Spain, two much larger economies than Greece.

One big danger is no one knows the exposure of so-called counterparties among big banks, not just in lending but in derivatives and other financial shenanigans. No one knows if it would be confined just to European banks.

No wonder this week has had that nauseating feeling of summer and fall 2008, as the American financial system wobbled toward near collapse.

Germany, Europe's robust economy, will not be able or willing to save its weak sisters. While European leaders may find more Band-Aids to slap on the wound, the future of the eurozone itself is open to serious question.

This costly disruption alone would make the 2008 collapse of Lehman Brothers look like a tiny bank failure on an otherwise sunny Friday afternoon.

In Asia, where so much of the Puget Sound area's future lies, Japan is struggling. On Thursday, the central bank there performed a massive intervention to drive down the value of the yen. The goal: Keep an export-driven economy competitive.

Investors are having none of it. They are bidding up the yen. It's a safe haven, thanks to Japan's stability and despite public debt twice the size of gross domestic product.

China, which was expected to lead the global recovery, is no longer looking as strong. (I'll write more about this Sunday.)

Which brings us back home.

Chris Mayer, senior analyst for Agora Financial, an independent research firm based in Baltimore, told me, "This sell-off has been in the making for weeks as Washington dithered over the debt-ceiling issue, finally passing a thoroughly uninspiring plan that does nothing to address the fundamentals of the deep fiscal crisis. The sell-off began Monday with the deal. Add to that the European crisis, and it's a wonder markets bothered opening at all."

At the least, continued weak economic data made some kind of correction inevitable. Friday's report on July unemployment will be an especially important marker. But even adding 200,000 jobs won't begin to repair the labor market.

Outside my downtown condo window, I can see four construction cranes. Seattle has recovered more than many places. But this will be short-lived if our trajectory isn't changed.

Yet major corporations are hoarding cash against this Great Disruption. No jobs-focused federal stimulus will be forthcoming, at least until after the 2012 election, much less new tax revenues or an exit to our costly military adventures.

The debt bugs and tea partyers may harp that the deal doesn't go far enough. This is a convenient escape hatch when federal spending cuts and paralysis drive the economy into recession.

They've won the argument. Now we'll pay the price.

You may reach Jon Talton at jtalton@seattletimes.com

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