Oil prices are half what they were a year ago.
The government is shoveling a trillion dollars in deficit spending at the corporate and household sectors, all of it must show up as someone's receipt. In the short run those lending to the government will not treat their bond holdings as lost to themselves, and future taxpayers have not repaid those debts yet.
The Fed has forced a huge lump of new money into the banking system, enough that their liquidity problems has eased. First money market rate spreads dropped as a result (3 month Libor is at 0.5%, not 5%), and following those, corporate bond rates have fallen from their double digit peaks of last fall. Simultaneously the bond market has reopened for corporate issuance, which has run nearly $2 trillion so far this year, from practically shut down in October and November of last year.
Inventory ran off in the smash as unfinancable at nosebleed interest rates in the panic, even faster than sales fell. Inventory levels are now as lean as they've ever been. Job reductions exceeded the pace of spending declines, and measured productivity increased as a result in the 1st and 2nd quarters. Not all of that is real long term gain, of course. But it does mean corporate America will stay in the black, lower earnings but not outright losses. And both adjustments have stored up future demand.
Housing starts collapsed to less than half a million units annual rate, low enough that (1) they have stopped falling (2) wouldn't have much impact anymore even if they didn't (3) that the supply overhead, still large to be sure, is now being eaten through at a million to a million and a half units per year annual rate.
Auto sales fell by half, as the single most deferrable large ticket consumer item. That helped the adjustment but is not sustainable and ordinary rates of sales will resume.
Tax collections fell and transfer payments increased automatically due to the income hit and the asset price hit from unemployment and the financial crisis. Along with the deficit spending, this has kept overall personal income after taxes *flat* since last year, despite the huge rise in unemployment. The fall in consumer spending has all gone straight to higher savings rate as a result, repairing consumer balance sheets. It suffices for consumer spending to rise again, merely that the savings rate stop increasing. That will happen this quarter or next at the outside, as it has already made an epic (entirely necessary) move to 7% of income. It won't go above 10 and stay there. As soon as it stops rising, the income stabilizers that already kept after tax incomes from falling, will restore consumer demand.
Huge debt write offs by banks are not absolute losses to the economy as a whole, they are transfers. The deadbeats who didn't repay them earned equal and opposite unjustified windfalls for every dollar some bank or saver lost. Huge debt defaults are assymmetrical in their timing and the firm-destruction and business-model falsification they involve are clear net drags, certainly. But the windfall side of that for the consumers who do not repay also operates to repair household balance sheets and maintain eventual consumer demand.
If you add all of it up, we have one quarter more of slower contraction, tops, and we may begin outright GDP growth as soon as the 3rd quarter of 2009. We will certainly be growing within 6 months. Growth in GDP sets multiple virtuous circles in motion that have been operating in reverse for the last 9 months. Notably, very low rates combined simply with asset prices that are no longer falling, will restimulate investment.
The economy is a self adjusting system, especially with macro-fiscal stabilizers (government counter-cyclical collections and entitlements, on autopilot, entirely independent of anything Congress does or doesn't do) and with countercyclical action by the Fed. All operate slower than mortal man desires but all do operate. The economy will grow because that is what free economies do as men shift resources from less urgent uses to more urgent ones, in the new configuration of prices.
In other breaking news, the sun will come up and water remains wet. Predicting that the US economy will grow in real terms is as safe a bet.
The "new" American economy won't be worth sneaking over the border for...