The US economy just ain't what it used to be. Photo credit: Photos8.com

US jobless claims fell last week, but fears remain – the US recovery is balanced on a knife’s edge.

The US economic recovery isn’t really recovering so much. That’s the conclusion observers are drawing from the news that though jobless claims fell last week, they’re still higher than they should be to promote job creation; that the economy’s rate of quarterly growth slowed to 1.6 percent in the last quarter; and that most other economic indicators, like mortgage defaults and the stock market, are pretty dismal. It’s nothing new, particularly – Alan Greenspan, former head of the Federal Reserve, said it was possible back in early August – but now people want to know what America is going to about it.

“Let’s see, what happened this summer? Easy question. The recovery went missing,” griped Bill Bonner, guest blogging at the Christian Science Monitor’s The Daily Reckoning blog. And the overwhelming sense in America, he noted, is that policymakers, stymied by a fractious Congress, a lack of political will and the worry that any curative measures will involve adding to the national debt, will be unable to find it. “The situation has left American fortunes pinned to an uncertain remedy: hoping that things somehow get better. This is where the Great Recession has taken the world’s largest economy, to a Great Ambiguity over what lies ahead, and what can be done now.” No one knows what to do – not elected officials, wary of spending any more money, not the Fed, worried about starting the engine of quantitative easing and seeing it runaway, and not Barack Obama, who wants consumers to spend money when they don’t.

Housing mini-bubble to burst? Photo credit: Jeff Turner, www.flickr.com/photos/respres/2539334956/

The situation now is dismal and it could, pretty easily, get worse. The Atlantic’s Derek Thompson and David Indiviglio, noting that it’s been a “brutal summer” for the US economy, offered up a handy explanation of the five worst things that could happen, five “financial earthquakes” that would plunge the US back into the depths of a recession. In order of likelihood, here are the places the re-recession might start: The mini-housing bubble, created through the US government’s attempts to stabilize the market, might burst; consumers keep saving and not spending; toxic assets return – the Treasury wanted to take on these bad assets, but couldn’t figure out how to do right, so now, the banks are stuck with them; Europe could just straight up fall apart; our lenders start demanding payback. It’s almost enough to have Americans stocking up n tins of baked beans and sardines for the coming financial apocalypse.

But is it as bad as all that? Well, sort of. And as Stanford University economics professor Michael Boskin opined in an op-ed for The Wall Street Journal, fixing the current situation is going to require some fundamental policy changes. “The president and Congress would have to implement serious spending reductions, real entitlement reform focused on substantially slowing the growth of benefits per recipient, and no tax hikes.”

And as other observers have noted, major policy changes aren’t terribly likely.

With midterm elections coming up soon, the White House is scrambling to allay fears that America is on target for a double-dip, but so far, it’s not working – just 41 percent of the American public agrees with how the Administration  handled the economy, according to an Associated Press poll last month. The Administration is working on new stimulus aimed at kick-starting the economy, but whether it can get the backing it needs to pass the package, The Telegraph noted, remains to be seen.