News of a sharply weaker economy combined with policy vacuum to produce the lowest mortgage rates ever recorded, briefly 4.25 percent for the highest-quality loans (at rollout in 1944, the first GI loans were pegged at 4 percent, but with a couple of discount points).

The 10-year T-note crossed under 2.7 percent, well into the range of the panicked winter, 2008-2009.

All data were poor, notably new unemployment claims rising back toward 500,000 weekly, but the killer lay in trade statistics. Our June deficit vs. the world shot up by $10 billion to $54 billion. Gross domestic product is based in part on sales, but the "P" in GDP depends on whether Americans bought stuff produced here or overseas.

Since we bought a great deal more from overseas than assumed in the original second-quarter GDP estimate of 2.7 percent growth, April-July GDP will soon be revised to only 1.0-1.5 percent. Guesses for the third quarter, with lousy momentum going in: zero to 1 percent.

In a tale of domestic and foreign overflight, the sky is black with chickens coming home, dropping eggs and other things on expectant, upturned faces.

The Fed looks weak and lost — as late as 10 days ago Federal Reserve Chairman Ben Bernanke was insisting on the Fed’s forecast for 3 percent-plus GDP growth this year. It did muster the courage to buy new Treasurys as mortgages on its balance sheet are extinguished by refinance, but that’s a net-neutral effort.

Tuesday, before the trade data shattered its forecast: "The pace of economic recovery is likely to be more modest in the near term than had been anticipated." How modest is more modest? Is this the "Modest Depression"?

Last year two camps of observers and policy advocates argued: the V-recoverists (believers in a V-shaped recovery curve), and the flat-bottomed-U grumps. The yolk-drenched former insist that the economy is in a mere "soft patch," but we better get on with more stimulus, budget be damned, and "jobs programs."

The flat-Us are pleased in a depressing sort of way, but the dominant portion (business, market, and the political right) think the solution is to get government out of the economy — this after the greatest market failure of all time.

The anti-government-grumps claim that uncertainty about new regulation has frozen businesses. Maybe, a little.

The National Federation of Independent Business small-business survey found that 73 percent of respondents thought this a bad time to expand; of those, 66 percent said a weak economy was the reason, and only 16 percent cited the "political climate."

Employment is weak because sales are lousy, not the other way around. Sales are lousy because the nation’s households are scared — more than half are unsure about their ability to sell a home, and if so for what.

However, employment is weak for another reason. The onset of "jobless recoveries" in 1992 coincided exactly with the rise of Asian export machines. We have allowed ourselves to be fleeced — skinned — by trade management, the offensive version of defensive "protectionism."

The U.S. is the only nation on earth not to manage trade. China’s July trade surplus hit $29 billion, all of it sold to us. Along with goods, these predatory exports send to us China’s wage structure, killing jobs here.

"Managed trade" takes many forms, but currency manipulation is central (cultural and governmental resistance to imports is as important). China this week cut the yuan to its value before its promise let it rise in June.

The guy most plastered with chicken byproduct: Timmy Geithner, our yuan negotiator. Act like a patsy, get treated like a patsy — the prior two administrations every bit as much at fault.

It’s not just U.S. vs. China. A deepening global slowdown has set off a scramble for net-exports. Germany’s second-quarter GDP soared at a 9 percent rate, its exports supercharged by a $1.30 euro undervalued by one-third relative to its uber-productivity.

The rest of Europe, shackled to a vastly overvalued euro, was GDP-flat. Germany borrows for 10 years at 2.39 percent, Ireland at 5.32 percent, and Greece at 10.46 percent. Not sustainable.

In this extraordinary week, the White House has been silent. Quite the election year — neither party with platform or clue.

Source: National Federation of Independent Business, Small Business Economic Trends Monthly Report, August 2010.

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