Ian has already written on the small picture of this jobs report, which shows a marked deterioration in the real job market for most Americans. However, it is not the larger picture of the business cycle.

It needs to be said a thousand times: the NBER fiddling with the recession rules was a politically motivated stunt which is both a sell out of whatever integrity economics has a discipline, and of the public interest. The correct ending date for the last recession: spring of 2003, shows this cycle for what it is: the longest post-war recession, correctly discounted by the stock market and other indicators, followed by the Keynesian surge of fiscal stimulus - in this case war spending - and the arrival of the hiring pick up in spring of 2004 on schedule. With this starting point, this economic expansion cycle looks like the others in the post-war period, and can be compared with them rather easily. With the official ending point, nothing makes sense.

With this starting point it was possible to see, correctly, back in the winter of this year that the "landing" of the Katrina shock would lead, or be allowed to lead, to the inflationary bubble phase at the end of the expansion. We have had two quarters of good economic growth, combined with lackluster jobs growth that is the hang over from last years slowdown landing. The Fed does not have inflation under control, or even monetary policy under control. But enough looking in the rear view mirror, let's look ahead at the shape of the inflationary boom, and its results in the next contraction, now clearly visible on the horizon.

Had this been the old Keynesian economy, there would have been a recession in late 2005. However, the devotion to creating long economic cycles, which is good for finance, but less good for manufacturing and labor, has created a particular form which is now easy to recognize, since this is the fifth one we have had: namely the spurt of inflation fueled growth at the end of an economic cycle, where propping up financial apparatus overwhelms the need to prevent production from moving too far up the curve of diminishing returns for bottleneck commodities.

Many people predicted recession for this year, however the common problem with these predictions is that they presume the willingness on the part of policy makers to take pain when it is for the good of the country. This presumed willingness is not present in the current generation of moral cripples, who will happily shovel another few thousand Americans into to inferno for just one more year of not having to come to terms with the legitimacy crisis in our government. Legitimacy has its price, but it also has its profit: legitimate governments do not need to bribe people to stay stable. Ours must shovel out massive bribes, in proportion to the lack of legitimacy that it has.

Instead, Congress and the President have more or less agreed to sit and do nothing for two years. Bush and his cronies get two more years of massive tax breaks and corrupt profits from profligate war spending, and Congress gets to not take the blame for allowing a recession as soon as they take power. Both sides see chances in the next election, and the people who are cashing the hundreds of billions in checks are perfectly happy to see gridlock of this kind. Nothing is moving but the money.

As I correctly predicted congress will pour as much money into the war as the last one did. Looked at from 30,000 feet, this Congress is exactly the same as the Delay/Frist Congress, except not quite so sexually perverted and not quite so obviously corrupt in every detail. There is some window dressing in the form of hearings that do nothing. The current Democratic leadership is covering itself with shame, because the costs of this delaying action will be with us for a generation. However, this period was also inevitable, as a group of people do everything possible to protect the old financial regime.

The upshot of this generation long march into monetary meltdown, is that Congress will spend like there is no end to keep the economy from going down. Profitization is happening now, and profits and sales are good. Consumers are feeling the pain, and they are not finding jobs, but the economy is whirring along, in the same way that a jet will lurch forward when its engines burn to hot before the give out.

We got, like clock work, 130 billion earlier this year, and will get our annual fall fix of war spending which is meant to get us through the winter. Barring a Katrina like disaster in the oil flow, we should see inflation relatively muted, with the housing bust contributing to a real fall in prices. This is one of the most important effects of changing inflation calculations in the early 1980's and is the result of suburbanism as an economic doctrine. Allow housing inflation at the end of a cycle, thus giving people a chance to cash out, and allowing the Fed and the Congress to extend the expansion longer than would otherwise be possible. Since the voting class sells housing inflation, it is a simple Democratic Pricing Theory situation.

This next year is going to see the effects of this: inflation in all bottleneck commodities, oil, health care and education particularly, but also defense spending as contractors pack in the profits before the war show leaves town. An attack on Iran would not be a ground attack, but use missiles and bombs, which are objects that, conveniently, Bush's friends make. To put these numbers in perspective, we are spending, every year, without gain an amount of money equivalent to the funds that fueled the entire dot com boom for two years. Bush can make petfood.com look like a good idea. That's impressive.

I told people a year ago to work as much as possible during this year, because it would be one of the last good rounds of wages and employment for sometime: longer expansion cycles also mean longer contraction cycles. The Reagan Boom lasted from 1983 to 1987, the down time from that boom, where the economy basically tread water, was 1988-1994, or half again as long before things were really humming along. The public knew it: Reagan's own approval numbers plummted during the hard landing of 1986, and never recovered.

I now state that it is time to ride it out. If you have not sold your house, don't. Cut spending, cut, cut, cut, cut, cut. Start preparing to trade time for money, because you are about to have more time. The reverse is true for the people still in jobs, because inevitably the response of business will be to try and get people to do 1.5 jobs on 1.1 jobs worth of pay. The solution here is to simplify your life, so that you don't pay to handle things that much longer hours will leave you to neglect.

There will be at least one more quarter of profits, and probably two. Gasoline prices will continue their declines, as construction lays off, and the urgency of contractors with three jobs a day to rush to will cease. You don't see as many Ford F-300 series pick up trucks racing down the highway at 90 MPH any more, just as Volvos at 85 with a cellphone and a latte in the the driver's hands became an almost extinct species in 2001. People just don't hurry as much when there isn't money to be made. In our case, that means gas prices will not go up by as much as the underlying increases in crude oil prices might indicate. However because of war spending, we should see oil begin to set a long term floor at $70/barrel, and make, at some point a serious run at what my oil trading friends call the "over/under" number: $90. So far I have told people to take that over number whenever it appears, 90 maybe a bridge to far, but a peak of $85 is easily makeable.

The crush point for the recession comes next spring, when Bush will send his extortion note to Congress for another 130 billion of war spending, on top of a bloated defense budget. At that point oil will have become a march upwards, jobs at the low end will be wallowing in a spurts and starts creation mode, and there might even be calls to put emergency UI benefits in place to cushion what is the leading edge of the recession in the auto industry. Business will be looking to slash costs, because you will be on the gravy train or not by that point, and the inflation pressure will prevent Bernanke from making an overt move. He will continue to bail out banks and hedge funds with unsanitized liquidity, but that will make things worse, not better for everyone else: speculative money has to be paid its high interest rate, and a situation where the people at the top are making more and more money as rent on money from people who are making less and less leads to lower standards of living.

At this point Bernanke and the Feeb, not the Fed, will be hearing howls to cut rates, and they will probably do it, because Ben knows that if the next election is a crushing defeat for the Republicans, his legacy as a McKinleyite will be in the trash heap. So far Ben has never done what is right in favor of doing what is Right wing, so don't expect him to change. However, the paradox is that this won't save him, and his own work tells why. All economic bets are over under. If a Fed is acommodating to a bad economic economic regime, then people will simply double up their bet on the Fed being even more cheap and easy than expected. Really, it's in his papers. He should read them some time, they predict the behavior of political hacks like himself rather well. Very insightful. Even brilliant in places. Good to know we have someone who knows about monetary policy, eh Paul?

The collapse, when it comes, will not be swift, but it will be confirmed when the next President and Congress either try to end the war, or to, as Clinton wants to do, cut back the war. This won't work, because we are addicted to the present war spending. Reducing the war is the Nixonian worst of all worlds: no victory in Iraq, and not enough money to keep the smack junkies going. Because remember, the bet is not on how much war spending, but whether next year will be larger or smaller than this year.

Ending the war leads to the ordinary post-war recession. Half ending the war leads to a more disastrous outcome, because it will both end confidence of lenders in the American willingness to pour more blood down a dry hole, and it will produce a burst of inflation. Since the US is older, poorer, and less dominant than in the 1970's, it will not take comparable rates of inflation and unemployment to cause similarly nasty dislocations in economic patterns. Read, if you are old and frail, a softer blow will still break bones.

Bailing out mortgage holders is a good way of please the new dominant political coalition - the "stiff the young" coalition of pensioners and those hoping to cop their houses and become pensioners. This coalition has its form in Germany, France, Canada and the UK. For a brief moment we might see right wing governments in charge of 6 of the G-8, even at the tail end of a decade which has decisively proven that they can't run a an economy anywhere but into the ground. Sandy ground near Baghdad specifically. Marshy ground near New Orleans for those who like it hot and wet. Whip me, beat me, make me take Bush Bucks.

On the other side of this recession a word you've started to hear will be the new word: overhaul. Reform is for people who have been winning and want one last deal, only with fewer wild cards to make it easier to hold on to their gains. Overhaul is going to be the word people use.

My own belief is that we need to overhaul both economic policy making, and global financial arrangements: the Fed, the IMF and World Bank are all in forms which were great when the job was keeping Saudi's rolling their dollar holdings in the US stock market, but which are lousy for changing the direction of the global economy. Broken by design here, the people holding the dollar wanted one thing more than anything else: no change in direction.

But in the mean time, get used to seeing trailing P/E's look good enough to prop up equities for a bit longer, even as forward P/E's scream "sell!" I mean, if cousin Ben is going to give you all this liquidity to dump stocks into, why not take him up on it? As for where to put money going forward, the obvious answer is to recession proof your portfolio. The next rebalancing you do should be: global, because low cost providers overseas will snarf up another round of American jobs, and dull, because there are things people always need to buy. Counter-cyclical in that defense, housing, automobiles and anything that people can delay as durable, will be.

And for Christ's sake, sell the Apple already, it is super over-priced, and the copyright industry is about to make a very stupid revolt against fair prices for content. Apple will be back later, but the next year is going to be an experiment in the part of networks to charge $5 a TV show, in a market where people will have the time to pirate those shows, time shift them, or TiVo out the commercials. Sell the health care stocks over the next few months, because people will not be willing to pass more "Health Insurance Company Protection Acts" like Massachusetts has, and their profits are going to be on the table in a massive series of state political fights to balance budgets. Trust me, when the choice is ripping health insurers, or putting tolls on more interstates, which is on the table all over the Northeast, health insurers will lose, because their reliable sheeple votes of ex-urban government haters are not going to want to pay tolls.

Another place to put money is anything that lets consumers cost cut. VoIP services are going to hit it big very soon, because everyone is going to dump expensive POTS for cheap VoIP who is getting squeezed.

Welcome to 2000 - that year where it hasn't gone bad yet, but the knees have been cut out from the economy. There is money to be made, even profits, but don't make any bets on the long term health of this economic expansion. One that, when honest people get back in charge of the NBER, will be listed as having the longest post war recession, and having a short, feeble expansion compared to the previous two economic cycles.

I'm also picking Hillary Clinton to play Jimmie Carter in the remake: same defect as a statesperson, namely an excessively neo-conservative streak and inflexibility of imagination.