needles and pins because the world economy, and the US economy, are passing through a narrow corridor. What Wall Street wants, which is not necessarily the same thing that the rest of us want, is the best economy we can get without the Federal Reserve raising interest rates, and without the government having to raise taxes on corporate profits and high incomes. Higher incomes, better schools, better hospitals, better roads, better education are all incidental to this, and they don’t really care if the rest of us have them or not. So long as we have credit cards that continue to swipe like well oiled machines, that is enough, or so the thinking currently runs.

The last few years have been very, very, very kind to corporate profits, if not to the rest of us. This is why they sit on edge, rallying by 1% one day, and falling 1% on the next. It seems that they turn one way looking at corporate profits, which, thanks to the generous nature of the Republican Congress for those afflicted waifs that are found in corporate board rooms, have been very good. On the other hand, they worry that energy prices will slow the US consumer. We have trickle-down profits, but “vacuum up” spending: if the consumer stopped spending beyond his means, not only would the US be in trouble, but all the other nations that depend on the US consumer to be fat, dumb and happy would be, as well.

The balance is this: if oil prices do not go down, then the Federal Reserve will tighten more. Alan Greenspan and the Federal Reserve minutes make this very clear, the current level of energy prices are far too high to sustain a continued expansion. However, we also know that energy prices are not going to be allowed to drop substantially. Partially because there is so little spare capacity that there is not much downward room, and partially because it is strong demand that is driving oil prices.

The developed nations, China, and OPEC have slowly pulled back from the squabbles of earlier this year. The developed nations in particular have realized that if Europe and Japan are not to fall into recession, the US must slow its economy and China must slow its economy - while OPEC pumps as much more oil as it can. Part of this entails the United States pulling out of Iraq quickly - since running a perpetual reinvasion of Iraq is an oil-expensive occupation. Part of this entails pressure on China to revalue its currency, on the belief that if Chinese goods were priced in more expensive currency, other nations would have more breathing room to grow themselves. Unlike the period 1970-73, when Europe and the US could not come to an effective agreement over the death of Bretton Woods, the current leaderships are more pragmatic, and are seeking solutions. We are about where we were in mid-1973, with signs that prosperity is slipping away and the world monetary system is in danger of coming unglued. The differences are as important as the similarities: in the early 1970s, the Arab states were willing to wage war and run an oil embargo, and the leverage of gold could be used by private players to pressure the US dollar without causing undue damage to other economies. As importantly, manufacturing is less tied to oil, which mean increases in oil prices mean lower profits from higher home prices, not higher goods prices. It means that the consumer is squeezed, but it does not show up as an immediate urge to raise prices. This is good for corporate borrowers, even if the net effect of falling real income is the same.

Thus Wall Street waits to see whether all the negotiations and the Federal Reserve's campaign to shake speculative money out of housing and oil will work. Housing and oil are related, because housing supply is driven by sprawl, which means people spending gasoline to get to cheaper real estate that they hope will shoot up in price later on. If all works out, the current series of “soft patches” will lead to a real expansion. The problem is that no one knows what will cause that expansion. That’s why Wall Street is fretting about “lack of leadership,” because, while Greenspan can push dollars out of the wrong places, perhaps, he cannot push them into the right places.

So what does this all mean to people who aren’t big investors or central bankers? Our situation is a great deal different. We haven’t seen massive reductions in our tax burdens, we haven’t seen huge pork barrel projects aimed at making profits for us without having to produce something that can work. And chances are, you don’t have a contract for a nuclear power plant in your mailbox this morning.

It means that, for the time being, the economy is going to get slowly worse and worse, while the high energy prices are squeezed out. The Federal Reserve has a blunt instrument - namely, raising interest rates - and it is hitting the economy over the head until the economy slows down. Then, or so the current government hopes, there will be something that everyone wants to develop, and that will take off to provide the “expansion.” However, if the Federal Reserve has to knock the economy senseless, we get a recession or a hard landing. Alan Greenspan doesn’t want to go that far. But he won’t ask you or me whether we feel good about how far he goes.

All of this is, admittedly, short-term. The Federal Reserve isn’t an institution that is well-geared to worry about the long term, and interest rates are not a good tool to manage the long term of the economy. Wall Street is also a short-term institution, responding to this quarter’s numbers and pressures. Right now, all they are worried about is whether the US will have a recession this year. Next year will take care of itself, with a little bit of help from Roy Blunt, the probable new majority leader of the House of Representatives.

It is supposed to be Congress and the President who do the long-term job, and right now they seem to feel that there is nothing wrong with the economy that having more sick poor people won’t solve - they have cut Medicaid by 10 billion dollars, which really means more, since much of that is matching money to states. Though, just in case soaking the poor isn't enough, they are trying to solve our oil problems by giving their friends sweetheart deals to build private highways and power plants. The long-term reality, that two billion people want into the affluent life, and there isn’t enough oil on the planet to allow that to happen, no matter which scenario you look at, is completely ignored.

Even the medium term isn't being looked at carefully, because right now the mood in Washington is to "blame China" for America's problems. It seems to have escaped many policy makers in Republican Washington that China's willingness to export may be causing job problems here, but it is also what is keeping energy and resource inflation from becoming general consumer inflation. The same one-two punch that has bogged down real wages and job growth, of rising energy prices and cheap labor and land in China, is now poised to swing the other way: if China exports more, energy goes up, if China exports less, consumer prices will rise as pent up demand for higher wages comes into play.

This reality means that the best we are probably going to get is a level of economic expansion that would have had a Congress in 1997 vote to lynch Bill Clinton, and not just impeach. For the rest of us, this tunnel is a good time to cut back on everything, and, strangely, work as much as possible. Jobs are going to get harder and harder to come by for a while, and they have not been easy to come by for some time. Later in the summer it will be clear whether this has, for now, worked. But I say “for now,” because without the “leadership” part, there is no real expansion, and next year Alan Greenspan will be clubbing the economy again. And even if it does work, the massive budget deficits are going to hinder wage growth for another decade to come.

So, while General Electric and other giant multinationals can get relief from bad economic consequences, for you and me, the recent bankruptcy bill is more relevant, and it has done just about everything short of reinstituting debtor’s prison, closer to debtor’s house arrest, at the same time that it has done nothing to restructure American’s credit markets, which are happily lending money to build houses for people whose wages are not rising as fast as inflation. And this isn't likely to change before 2009.

If you think that this probably isn’t going to end well, you are probably right. And if you think this can’t go on, just remember that what can’t go on, won’t.

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Stirling Newberry is an internet business and strategy consultant, with experience in international telecom, consumer marketing, e-commerce and forensic database analysis. He has acted as an advisor to Democratic political campaigns and organizations and is the the co-founder, along with Christopher Lydon, Jay Rosen and Matt Stoller, of BopNews, as well as being the military affairs editor of The Agonist.

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