So, let's start with the good news. The US Commerce Department reported this week that profits at American firms rose 11 per cent in the most recent quarter. (Cue the 'yays!')

That means the financial crisis is past. Indeed, with corporate America returning to health so quickly after its seeming near-death experience, surely the economy is headed for a big bounce next year. (Uncork the champagne!)

OK, that's the good news. Now for the not-so-good news. Nearly all those new profits - nearly nine-tenths of the total increase - occurred at the banks. Moreover, most of those profits occurred at a relative handful of banks. As the Federal Deposit Insurance Corporation reported, also this week, the number of banks on its 'problem list' rose to its highest level in 16 years. (Put the champagne back in the fridge.)

In reality, the financial rescue engineered by the US government boosted profits at a relatively few large financial institutions. The government, aided by the Federal Reserve, virtually gave them free money, which they used to buy various government-backed securities for a margin. Think of it: borrow cheap to buy assets the government promises you will not lose money. You'd have to be a fool not to get rich. Big profits follow, which mean share prices go up. That, in turn, improves bank balance sheets, thereby giving the impression that the worst is past.

But that money is sitting there. It's not being loaned out, nor is it being used to help ordinary Americans with their mortgage payments or credit-card bills. On the contrary, banks are squeezing their consumer clients harder. Anxious that another crisis may hit, they are rushing to get bad debts off their books, and avoid taking on new risk. (Sell the champagne and stock up on bully beef.)

Yep, America is waiting for the other shoe to drop. And with mortgage foreclosures on the increase, which in turn will probably cause home prices to resume sliding - thereby worsening bank balance sheets once more - there is a good chance the other shoe will drop.

Devaluing currency

Of course, a good chance is not a certainty. All depends upon what happens in the 'real economy'. If exports were to increase strongly, or demand were to pick up, the economy might come out of recession, putting the worst behind. The US government is trying to encourage exports by devaluing the currency, and to increase demand with its stimulus programme.

But while exports are going up, the weakening dollar is raising the cost of oil imports: one cancels out the other. As for demand, the stimulus programme is being damned by opponents for costing more than it is creating in new demand, all while leaving future generations with a heavy debt bill.

But that may not be the point. No stimulus programme is likely to create a booming US economy; there is far too much excess capacity for that. But what it may succeed in achieving is to keep demand from collapsing outright. If anything, the government will need to implement yet another stimulus package to keep things from getting too chilly through the winter.

Regardless, the hopes for a 'V' shaped recovery are now being seen as a bit optimistic. (Man, that champagne did look good.) The sky may not fall again. But it may feel a bit closer.

As I said in last week's column, that means there will be no easy ride for us. US demand and remittances will drop. With Canada's economy being so closely tied to America's, it will pick up little slack. As for Britain - well, let's not go there.

We're on our own. It's time to get clever and bold.

John Rapley is president of the Caribbean Policy Research Institute (CaPRI), an independent research think tank affiliated with the University of the West Indies, Mona. Feedback may be sent to columns@gleanerjm.com.