Then there's the Boston University economics professor Laurence Kotlikoff, who accuses America of running a six-decade-long Ponzi scheme, suspending fiscal rectification. With the interest bill on America's $US13 trillion-plus ($14.5 trillion-plus) national debt the equivalent of 14 per cent of its gross domestic product, Kotlikoff prophesies inevitable long-term pain. "The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills," Kotlikoff wrote for the news agency Bloomberg. "Most likely we will see a combination of all three responses … This is an awful, downhill road to follow, but it's the one we are on. And bond traders will kick us miles down our road once they wake up and realise the US is in worse fiscal shape than Greece." Even the so-called "perma-bears" are getting a gallop again in the media; this week The New York Times profiled the London-based Albert Edwards, of Societe Generale, who forecasts a "bloody, deep recession" - a collapse in stock prices of 60 per cent followed by years of 20 to 30 per cent inflation as central banks seek to douse the flames with a flood of money.

How credible are the extremists' views? While plenty of commentators see an upside, this week's modest market intervention by the US Federal Reserve, and what it signalled, tested the resolve of many a sunny theorist. The Fed's decision to use the proceeds from mortgage-backed securities to buy US Treasury debt, dubbed QE2 (quantitative easing, mark two) because the move effectively put more money into the hands of lending banks, it also signalled its concern over the economic outlook, playing further on fears of a double-dip recession. At best, the US recovery looks to be in slow motion. A downward revision of second quarter GDP to 2.4 per cent (annualised) from an expected 4 per cent, a widening trade gap and higher-than-expected jobless claims - the highest since February - all pointed to a stalling recovery, prompting a sharemarket rout that pushed share price movements into the red for this year. Some analysts described the pullback as a response to the market having over-reached in recent weeks after surprisingly good corporate earnings, rather than any change in sentiment.

Some described the sell-off as knee-jerk. "I don't know that we learnt a lot new," said James Paulsen, the chief investment strategist at Wells Capital Management, in an interview screened on Bloomberg TV. "Is it really surprising that the Fed said the recovery had stalled? I just don't think it's a shock … "It's not what the Fed is thinking, it's more about what the main street data is going to suggest in the months ahead. I think it might be starting to get a little better." Even so, underlying economic fundamentals are suddenly under renewed, intense scrutiny: that the present recovery is lagging the sort of trajectory typical of previous post-recession rebounds is defined strikingly by statistics on growth and jobs. Had it matched those previous recoveries, the US economy would now be 7.7 per cent larger than it was when the recession hit in late 2007, points out Josh Bivens, of the Economic Policy Institute in Washington. Instead, the economy is 1.1 per cent smaller. "In short, we have a long way to go before the economy can be declared truly healthy," says Bivens, who notes that the deceleration is occurring even as the last of the federal government's $US800 billion stimulus is percolating through the economy.

"By the last quarter of 2010, the Recovery Act will no longer provide a boost to growth. What will emerge to take up the slack of fading Recovery Act spending is a troubling open question about the economy going forward." At the same time, the recovery's impact on job creation has been minimal, suggesting the stimulus simply wasn't big enough to counter the severity of the downturn and that the path to recovery will be long and arduous - and slow. Similarly, the Hamilton Project, a program run by the Brookings Institution and headed by the former White House economist Michael Greenstone, studied job losses and job creation in previous recessions to gauge the progress of the current rebound. The comparison is grim, revealing that the drop in employment and the number of people seeking jobs is already far more severe than in any previous recession of the past 50 years - in fact, 50 per cent greater than the next biggest decline, which was recorded during the 1981 and 1982 recessions. "Just as troubling as the depth of the decline in employment is the duration of the decline - more than 24 months," the study notes. "In many earlier recessions, employment resumed steady growth within two years of the start of the recession."

An exception followed the 2001 recession, the weakest rebound in payroll since 1948. In fact, job growth in the US had not fully recovered ahead of the current downturn. "These factors imply that restoring employment to pre-recession levels will require far stronger job gains than we experienced during the last recovery," the authors note. The data suggests that with the central bank apparently with little opportunity left to influence markets - banks, cashed up with as much as $US1 trillion, remain as reluctant to write loans as borrowers are to take on more debt - pressure will intensify on Congress to return to the well of fiscal stimulus. This week members of the House of Representatives interrupted their long summer break to pass a $US26 billion emergency aid package to stave off massive teacher lay-offs and planned cuts to Medicaid (the health insurance program for the poor) in states struggling to manage budgets perished by a collapse in property revenues and other tax shortfalls. But Republicans - and some conservative Democrats - have pledged to fight any other spending proposals ahead of November's midterm Congressional elections, which are expected to seriously dent Democrat numbers in both houses of Congress, possibly even returning control to the Republicans.

Among the policy dilemmas facing the President, Barack Obama, is a pending decision on whether or not to extend generous tax cuts for the wealthy that were introduced by his predecessor, George Bush, in 2001 and 2003, but which are due to expire at the end of the year. Republicans, generally, back an extension, despite an apparent contradiction given their opposition to new spending measures. But to do so would add an estimated $US700 billion over 10 years to the national debt, which is why Obama favours extending the tax break for the middle classes only - for individuals earning up to $US200,000 a year and couples making $US250,000, about 98 per cent of American households. (Huge regional discrepancies account for the seemingly generous ceilings: $US250,000 in Missouri looks massive, not so Manhattan.) But the cost of the revamp could be a further dampener on job hirings because three out of every four small enterprises declare their business income on their personal tax returns. If the tax cuts do end, the top tax rate for business owners will rise to 39.6 per cent from 35 per cent, increasing tax by about $US12,000 for a business bringing in $US400,000 a year. There are plenty who argue that Obama should bite the bullet and axe the cuts altogether, including the former Federal Reserve chairman Alan Greenspan, who argues that the Bush tax cuts should never have been financed by debt. Attacking the deficit, says the octogenarian economist, is more important than putting more cash in the hands of taxpayers.

But some economists argue that the US recovery's slowdown has removed that option, data revisions implying that the deceleration is much sharper than previously known. Removing the tax cuts altogether would wipe an estimated 0.9 of a percentage point off GDP; a partial adjustment would take away 0.2 of a percentage point. Since the second quarter GDP revision issued at the end of July, manufacturers' inventories of non-durable goods have also been revised sharply lower. Then came Wednesday's unexpectedly large trade deficit amid the prospect of a further tailing in demand for US goods as European governments move towards fiscal austerity. The circle of decline is a vicious one, and with consumer spending accounting historically for about 70 per cent of America's economy, the implications are nasty. Some private-sector forecasters are now predicting second quarter GDP to have been as low as 0.3 per cent when the final figure is announced. "If you don't see employment growth and wage growth, the American consumer, the traditional engine of our economy, is going to sputter out," warns an analyst, Andrew Fieldhouse, of the Economic Policy Institute. He is a staunch advocate of a massive new stimulus plan.

While Fieldhouse concedes that the necessary political capital for such a move might simply not exist, he argues that the spending is essential if America is to stave off economic disaster. Frustrated by the manner in which the debate over deficits and debt is framed, he adds: "A deficit is not a problem: it's running consecutive years of deficits and having an upward trajectory of debt." He tells Weekend Business: "The long-term debt is a real problem, but you have to remember that near-term fiscal stimulus does not contradict long-term deficit reduction. In fact, it complements it." Faster growth, he adds, would increase tax receipts and help with deficit reduction. Fieldhouse favours a big boost to programs for the jobless and other welfare, which would give policy makers the biggest bang for their buck, as well as additional aid for state governments. "The recession was much worse than we thought it was [and] it's getting worse just because of data revisions … At best, we're looking at anaemic growth that is too slow to generate the substantial improvement needed in the labour market. At worst, we're looking at a dangerous possibility of a double-dip recession.

"If anything would jeopardise our long-term fiscal outlook right now it's a return to recession. Either case, more fiscal stimulus makes sense. You really don't want to spin this economy back into recession." Kotlikoff talks about longer-term remedies for America's structural problems: a comprehensive low-rate consumption tax, an overhaul of America's "sclerotic" tax system, a revamp of social security. "But we are in deep doo-doo," he adds. Roubini, who is a professor of economics at New York University and co-founder of Roubini Global Economics, casts a gloomy picture of the economy in the months ahead, predicting the barest growth of 1.5 per cent in the second half of this year and into next. He acknowledges the policy dilemma facing the Obama administration, that "you are damned if you do and damned if you don't" reach for a spending fix. "It's an extremely delicate trade-off in this debate between growth now versus fiscal and monetary austerity now.'' Loading

He adds: "One-and-a-half per cent [growth] is not a double-dip recession, but it's damn close to it. Once you are at one-and-a-half, everything looks worse: unemployment goes up, the budget deficit is larger, house prices don't stabilise but fall further, losses that banks have on mortgages and consumer credit and securities are larger … "So, my view, even at one-and-a-half it's going to feel like a recession when technically it's not a recession, and once you are growing so slowly, the risk is you reach a stall speed, like a plane. If you slow down too much you're going to go into freefall."