It doesn’t seem to me that they’ve avoided a recession.

Two enormous clouds remain for whoever becomes president: the housing slump and the banking crisis. Both are far from being finished yet.

Is the worst over? Are we on the road to recovery? Will the next president take office against a backdrop of economic improvement, as Bill Clinton did in 1993? Or has something deeper and more intractable gone wrong?

Early this year, the optimists, including Citigroup chairman Bob Rubin and Treasury secretary Hank Paulson, argued that the slowdown was short-term and that a “stimulus” package should be “targeted and temporary.” This with rare haste the Democratic Congress enacted. As a result, most taxpayers got one-time $600 checks in May, prefigured by bubbly messages touting “Good News!” if you filed your taxes electronically.

The rebate isn’t the only little Dutch boy thrown headlong at the dike this election year. Government spending, especially for defense, will be up: Military spending as a share of gdp is expected to grow by $75 billion in fiscal 2008, enough to neutralize a 0.3 percent decline in gdp. Dick Cheney was secretary of defense for Bush 41; just before the 1992 election he engineered a big run-up in outlays, as the military restocked following the first Gulf War. (It was exposed in the first Clinton “Economic Report.”) Is the Pentagon up to that trick again? I’d be astonished if it were not.

More at Alternet