Hopes that the U.S. economy may be emerging from the Great Recession went viral over the weekend, leaping from the pages of the Wall Street Journal into the headlines of every small-town paper in America. Here in Boulder, Colorado, amidst a prom season that saw at least a few kids forego the traditional stretch limousines in favor of parental chauffeurs and, omigod, shuttle buses, the business section of The Camera led with a story about how “The Worst May Be Over.”

And what news prompted this sunny reading of the statistical tea leaves? Here’s how the Associated Press story began: “A better-than-expected unemployment report Friday – job losses declined to the lowest level in six months – capped a week of encouraging news, including firmer home sales, a revival in consumer spending and fresh optimism about the biggest U.S. banks.”  A drop-headline put it in better perspective: “13.7 Million Americans Are Still Unemployed.” Elsewhere on the page, in the News Briefs section, a slightly more skeptical tone obtained: “As far as Wall Street is concerned there is no bad news anymore. At least for now, traders are seeing news about longtime trouble spots like banking and unemployment in a strictly positive light.”

Not to impugn the sage judgment of traders or cast doubt on their prescience, but there must be at least twenty-five million homeowners who see things differently. Very differently. After all, how optimistic about the economy can one be if one owes $50,000 to $300,000 or more on one’s home than it’s worth? A conservatively estimated third of U.S. homeowners are in this boat, and we doubt any of them are quite so confident as “Wall Street traders” that a recovery is at hand. To the contrary, Main Street remains deeply troubled by such discouragements as bullish traders are straining to ignore —  namely, that a reported $12.8 trillion worth of fiscal and monetary stimulus has failed to lift the prices of homes by even a dime. Even worse, prices are continuing to fall.

Nor have all those trillions had much impact on the looming retirement bust. Baby Boomers have done the math and realize that their retirement dreams have gone up in smoke. They know this will remain so even if the stock market doubles in price, and even if home values return to their lofty levels of 2005. They understand as well that the days are over when the average investor could reap a safe 5% return on his nest egg. Only banks are making that kind of money these days — by lending to consumers at revolving-charge rates ranging from 8% to 30%.

 Recovery Details Sketchy

Meanwhile, any talk of recovery is necessarily light on details. “Wall Street traders” and the news media act like this recovery will be like every other recovery before it – i.e., spurred by heavy consumer borrowing and an orgy in the retail sector. No one seems to be asking where the income will come from to support this. And no one mentions that the real estate collateral that made the last boom possible has fallen in value by at least 40 percent.

Wall Street should enjoy this delusional state while it lasts, since renewed weakness in the dollar is threatening to end the party. The Dollar Index breached a key “Hidden Pivot” support on Friday and looks primed to fall hard. If so, and interest rates across the yield curve begin to rise, the Federal Reserve will be hard pressed to make good on its promise to hold the cost of credit down. Hyperinflation might be an option at some point – a very dire one, to be sure – but anyone who thinks the consequences of this – i.e., wiping out creditors and the bond markets in order to “rescue” debtors – will somehow save the economy is in for a rude awakening.

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