This strikes to the heart of what I have called the credibility trap.
The US government cannot effectively deal with the financial crisis and the required credible reforms because in fixing the problems they would necessarily expose the underlying fraud, and endanger the very powerful status quo that funds them and their political campaigns.
This is more difficult to manage than a liquidity trap because the very means of remedy have been co-opted. The doctors caused the illness, and cannot pursue a cure without admitting their malpractice, which may not have been done in simple error but with complicity.
So this malaise and period of selective recovery will continue until there is a another, more destructive crisis that finally clears away the fog of corruption. Or there is some exogenous event to distract the people to some other problem, to change their focus. 'Never waste a crisis' as they say in the Washington Beltway.
