With reference to Dave’s Top 10 Reasons why the recession will last forever, here’s another set. I continue to believe that the S&P will end 2009 about where it began.

10. Exports are down by a quarter from their June 2008 peak.

That’s $335 billion a year in lost US exports. With a massive dollar devaluation, this is supposed to improve. But economic weakness in the rest of the world is going to make it hard to come back to last year’s levels. Exports are critical, because only by exporting more can Americans save without shutting down the US economy.

9. Credit growth remains negative.

Total bank credit for all US commercial banks shows the weakest year-on-year growth since 1970, weaker than during any previous recession. And there’s a sharp drop during the past several months.

8. Weakness in existing home sales show that despite record low mortgage rates, screaming bargains in lower-priced homes, and tax breaks, the housing market continues to weaken.

4. The housing picture is much worse than the foreclosure numbers suggest. The Wall Street Journal reported yesterday:

As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages

Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.

7. The Fed’s Household Wealth Survey for the second quarter sounds impossibly optimistic:

Home prices also started rising for the first time since 2006. The Fed said the value of real estate holdings rose 1.8% during the second quarter. Prices are now edging higher in most regions of the U.S., a trend that — along with continuing gains in stocks — points to higher household wealth in the third quarter as well.

The recovery helped push homeowner’s equity — as a share of household real-estate values — up to 43.1% from 41.9% in the first quarter, a measure that peaked at 58.7% in 2005. The Fed said home-mortgage debt fell an annualized 1.5% during the quarter.

6.  Total consumer credit outstanding is still falling, and at the fastest rate since World War II.

5. Business are still reducing inventories, and at the fastest rate on record:

One would expect an inventory cycle bounce at some point — perhaps even enough to put the US into positive GDP numbers for a quarter or so — but that’s not a recovery.

4. The Fed is caught between a rock and a hard place. Monetary stimulus remains out of control:

To raise interest rates, though, would be to kick the housing market back down the stairs. To leave monetary policy where it is risks nasty inflation down the road.

3. Dollar devaluation has helped about as much as it’s going to.

The rise in US equity prices, as I’ve observed in the past, is an almost direct function of a cheaper dollar: as US assets fall in value relative to other currencies, the world buys them. But there’s a limit as to how much the dollar can fall without creating havoc among other economies.

2. The effect of fiscal stimulus will come to an end: no more cash for clunkers, bailouts of bankrupt municipalities (by taking over their spending requirements), tax subsidies for mortgages, and so forth.

But the number one reason the US never will get out recession still is –

1. Barack Obama. By toying with a trade war with China in order to appease his organized-labor constituency, Obama has taken a giant step away from a prospective solution.

As Francesco Sisci and I wrote in Asia Times almost a year ago,

No recovery is possible unless American households can save, and they cannot save in an economic contraction when incomes spiral downwards. To save, Americans must sell goods and services to someone else, and a glance at the globe makes clear who that must be: nearly half the world’s population, and most of the world’s capacity for economic growth, is concentrated in China and the Pacific Littoral.

China’s economic problem is the inverse of America’s: China has achieved fast rates of growth at the expense of huge disparities between the prosperous coast and the backward interior, as well as excessive dependence on foreign markets. China’s policy response to the economic crisis is far more radical than Washington’s. Rather than attempting to patch up the situation and restore the status quo ante, China plans to spend nearly a fifth of its gross domestic product on an internal stimulus focused on infrastructure in its interior. Severe execution risk attends the Chinese proposal, and markets remain to be convinced.

China can reduce the execution risk of its great economic shift towards home consumption, and America can solve its savings problem, through a grand partnership. This partnership need not be exclusive to America and China, but it must be founded on America and China, two of the world’s largest economies. India and the other Asian economies should be encouraged to join this partnership. A great deal has been written about prospective conflict between China and the United States, but very little explanation is offered as to what issues might arise between China and the United States. China and America have far more to gain from cooperation than from conflict.

There just isn’t any way to square the circle within the US as such: households have lost too much wealth at the cusp of a gigantic retirement wave, so that demand for savings is virtually limitless. That’s one reason why bond yields remain so low (another is that the cheap dollar makes them attractive to foreign investors). Americans are locked into a vicious cycle: as their wealth collapses, they must save more; that reduces sales and output, and leads to unemployment; unemployment causes more home foreclosures and keeps the housing market weak; wealth continues to fall; returns to prospective retirement assets decline, forcing households to save more; and so on, ad infinitum, or at least as far as the eye can see.

The only way to break out is globally, and Obama is getting colder rather than hotter.

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