A bottoming out does not a recovery make

Jackson Hole, Wyoming, is where the cowboys go to croon beneath the stars.  It's also where the world's central bankers meet to schmooze every August, and sometimes it's not clear who's cowboy, who's central banker.  Sometimes they're both.

Cowboy Bernanke was in a jubilant mood in Jackson Hole at the end of last week, when he took credit -- on behalf of himself and his peers -- for having saved the world from the end of the world, at least from a massive financial meltdown.  "Prospects for a return to growth in the near term appear good,"  said the chairman of the Federal Reserve.  "The outcome could have been decidedly worse."  But cowboy Trichet, who moonlights as the President of the European Central Bank, was less sanguin.  Talk of a return to normal made him feel a little uneasy.  If not queasy.

So, what's happening?  Well, Ben, a bottoming out is not a return to normalcy. Unemployment is still high in the US and Europe and private financial flows to emerging economies -- a key growth factor in these markets -- are still comatose.  Domestic demand in the big economies is still very low as consumers seek to repair their balance-sheets and don't count on returning to their free-wheeling habits any time soon.  What we need, my friends, is a new engine of growth to replace now dead US middle-class consumption driven by excess credit card debt. 

China, can you hear me?

An intriguing question going forward is how these events will shape political outcomes in the near term.  In Japan, the impending loss of power by the LDP -- for the first significant period since 1955 -- probably would have happened anyway, as the party lost credibility long before the financial crisis.  But what about governments falling in Africa?  Abolition of term limits? Unrest in the Middle East?  Has the financial crisis emboldened the Taliban in Afghanistan? How long can Mr. Chavez survive on $75 a barrel oil?  Where will the next coup occur?

So many questions...