The US is now at a turning point in its history and it will have enormous implications on US society as well as politics. To my mind, the most important factor in what is unfolding is the shift in Zeitgeist that is occurring as the Neoconservative era winds down and exhausts its energy.

While a number of subordinate factors are involved, it looks like it will be the economy that will provide the shock that changes the direction rather than the ME war. The economic situation is not only a cause but also a reflection of this shift. Because I think economics will manifest the shock that awakens America to the dawning of a new era, I will examine the trends I see unfolding that are leading in this direction.

It seems that the US economy is now at the tail end of a period of expansion, indicated, for example, by the replacement of finance as the chief economic driver instead of production. Now finance is collapsing with the credit crunch, especially given the enormous debt burden of both the government and the public.

At the same time, the world is awash with dollars and money supply is still expanding rapidly, diminishing the value of the dollar relative to other currencies such as the pound and euro, as well as to tangible assets, especially commodities. US purchasing power is declining, and choice assets are being picked up by foreign rent-seekers in addition to the usual suspects (the US ruling elite).

While PPI and headline inflation are rising and the value of the dollar falling, core inflation remains modest and wage inflation is negative, as real incomes for the majority of US workers are stagnant or falling, as they have been for decades. As a result, price inflation is not so much the problem as the dollar glut. This will combine with with deflation, e.g., that affecting US consumers through both declining wages and house prices.

Inflation is now not so threatening as deflation measured in terms of declining real GDP resulting in negative growth. This is finally manifesting in decreasing demand and social unrest, both modest so far, but increasing.

An unprecedented asset deflation in housing looks to be now underway which is affecting, first, consumer confidence, and secondly, consumers' ability to continue consuming at the same rate. Thirdly, an increasing number of consumers are getting into financial trouble paying their bills and servicing their debt as the cost of essentials -- food, energy, healthcare and education -- rise more quickly than the measures of core inflation.

So far this is mostly a squeeze rather than an economic crisis, but it looks like a crisis is building, judging from the debt to saving ratio, which is now in negative territory and the value of major investments of the middle class are taking a hit. This is beginning to manifest in declining demand, threatening a recession in the US that will spill over into the world economy. At this point in time, it would take a miracle to rescue the US consumer, let alone give US consumers another shot in the wallet to hit the malls. About the only option left is parachuting packets of bills from helicopters, as Chairman "Helicopter" Bernanke jokingly suggested the Fed would do.

The Fed will attempt to stave this off by "increasing liquidity" (read "easy money"), but businesses will not be interested in borrowing to increase productivity, because of declining demand and no one is about to buy junk securities without their being marked to market, which the holders are not yet wont to do for fear of insolvency. Of course, that easy money could go into investment in increased productivity, but that is unlikely given where we are in the business cycle.

Corporate profits (savings) have not been committed to increasing investment but rather in financialization. So why would more easy money inspire it now? Therefore, there is now no promise of business picking up the slack by increasing either the number of jobs or wages of existing jobs, let alone create new higher wage jobs.

Instead, business is facing a surplus of production and increasing inventories as consumers slow their buying. Soon CFO's will be calling for a slowdown in the pipeline, as well as some inventory liquidation through sales and special offers, in order to soak up the remaining bit of consumer buying power before the economic turn down begins in earnest.

Therefore, with business materially out of the picture, the government will be called on to pick up the slack. However, the government is not in a position to increase the job market through social programs because it too is tapped out from the debt binge it has been on and continues to run. It can't lower taxes much more and continue to function without cutting spending, thereby canceling the effect of a tax decrease by simultaneously taking the money out of the economy that it it injects. Cutting spending alone would have the negative effect of decreasing jobs and reducing social programs, about the only place that cuts are possible other than the military, and the military is not going to be cut while the country is at war.

Wars are inherently inflationary, so this situation just adds to the dollar glut without affecting the domestic economy. The government can only continue its foreign adventures on the present basis as long as the Asians and ME is willing to soak up an ever-increasing glut of dollars. However, the ME has already indicated that it is not willing to give away its diminishing oil for dollars of declining value without price increases. Thus, the dollar glut will continue to increase under this scenario until there is a dollar crisis, which is already brewing.

The other solution available is to increase liquidity at the risk of further exacerbating the dollar glut. These funds will neither increase consumer demand, nor be used to purchase the junk securities clogging the financial system, which will have to be absorbed by the government (taxpayers) as the Fed takes them through its discount window, putting further downward pressure on the dollar.

But the dollar glut will continue to result in asset price increases at the top, producing other asset bubbles as the rent-seekers look parking places for these funds. Funds will not flow into the housing market, where it is needed, until housing prices fall to levels supporting positive cash flow, making investment attractive to rent-seekers. Nor is the dollar glut likely to flow into equities in a recession, until market cap and ROI is more attractive relative to value of assets. Rather, excess funds will flow into tangible value such as natural resources, driving up the price of commodities like oil, natural gas, and metals, etc, putting further pressure on consumer prices.

Meanwhile, the financial system will be working its way through liquidating a mountain of debt whose value is falling as it is increasingly marked to market. Given the multi-trillion dollar figures involved, this will either result in quick catastrophic losses appearing on the books, resulting in insolvent financial institutions and a financial meltdown, and an ensuing government bailout, putting more pressure in the dollar, or else there will be a gradual wringing out of excesses over a number of years of crises interspersed with stagnation, extending the credit crunch over time.

Moreover, the US (neoliberal) economy is based on ever-progressive growth. This requires an ever-expanding supply of energy. However, energy supply is now flat and perhaps set to decline relative to world demand. An economy cannot grow faster or longer than the supply of energy. Ths is an absolute constraint, and we are in the midst of a supply contraction relative to demand. Either demand has to fall or energy prices rise, or new sources of energy have to be developed and brought online. Developing new sources of energy is neither quick nor cheap.

This scenario will begin unfolding in earnest in the first quarter of the year as more resets kick in, exposing not only "subprime" buyers but many others as well. Many people in the middle class, especially in "frothy" areas got in over their heads, and the weak hands are going to be shaken out, which is going to involve a lot of pain.

The political manifestation of this unfold in the campaign, especially as the economic situtation deteriorates in the coming year. I expect the campaign to be fluid until the voting day, since many people do not finalize their decision until the very end and they vote in light of the prevailing Zeitgeist, which has not yet revealed itself.

The candidates are all still talking in terms of the status quo and fixing it around the edges. No one is yet talking about a new vision for America, other than mouthing words. No one is addressing America's place the world as we enter the post-Bush and post-Necon era, which will involve enormous economic challenges along with meeting the increasingly serous challenge of global warming, while also dealing with international instability in a world where the US has become isolated. No one is talking in terms of an over-all budget that addresses America's present and emerging challenges by allocating resources to opportunities instead of merely patching the state of affairs.

Complicating this for the incoming US administration will be serious constitutional issues raised by the Neocon vision of (1) the unitary executive, trumping rule of law, (2) unilateral foreign policy, (3) the surveillance state, and (4) the privatization of the military, which will not be addressable while Bush is in office without impeachment, which is unlikely. None of the candidates have yet addressed core American values in terms of the harmonizing of individual liberty/human rights, equality before the law, and the common good, which are now seriously out of whack.

There is an old Chinese curse: May you live in interesting times. It looks like we are entering interesting time, and the world along with us. No one ever said that globalization was going to be easy. We are now in one of the early testing period to determine the character and composition of the "new world order."

This emerging Zeitgeist is going to require a new vision for America and its place in the new world order toward which globalization is inexorably leading. Globalization is not going to be a linear process, nor is its social, political, and economic character clear at this point. Philosophically, politically and economically, it's going to be an exciting time to be alive, although not an easy one.

It was an exciting time but not an easy one for my generation, which lived through the Vietnam and post-Vietnam era. Moreover, we heard the stories of the WWII and post-war era from our parents, and the stories of the Great Depression and New Deal from our grandparents.

But all in all, I have to say that it was a great experience. However, after Nixon went disgraced into oblivion, most of us never even considered the possibility of a Reagan, let alone a Bush. Hopefully, history will be kinder this time around, and we won't succumb to previous mistakes. But at the moment anything's possible, especially considering the differences between the parties and among candidates.

My feeling is that if the Neocon Zeitgeist is not yet exhausted, then we could get another GOP administration, which would be in the direction of corporatism become fascism in the form of a dominant militaristic, corporatist, authoritarian governmental complex (sort of the definition of fascism isn't it?). If it is not completely exhausted but waning, then we could have a centrist regime that attempts to ride the aging but still powerful and dangerous tiger through the tail end.

However, if the Zeitgeist actually changes, it will be revealed in a shift in the foundations of the political universe of discourse, and then we could see a new vision for America unfolding. I think that all of the Democratic candidates are capable of responding to this, although some will be better at it than others, and one will emerge the victor.

AT this point the traditional media will discover that there is already a rich and highly developed universe of discourse that they had ignored in favor of the dominant memeplex foisted on it by the powers that be, with whom they were complicit in perpetuating a status quo whose principal concern was aggregating power at the top and transferring wealth upward. Fresh voices will arise, and dialogue will begin anew, replacing distraction, as real challenges are acknowledged and met.