Economic skies forecast: slowly clearing, heavy rain returning, or cyclone?

Many people still talk about a "recovery," or at worst only see a possible double-dip recession. But what if the mistake was to think the economy was only in a recession in the first place? It can't "double-dip" when it never truly recovered:

"The respite following the 2009 stock market low is not a new expansion. It has failed to improve housing sales, barely caused employment to budge, and hasn't managed -- despite the unprecedented manufacture of new Fed money -- to get the total supply of credit back above its 2008 high." ~ Elliott Wave Theorist, Sept. 2011

Indeed, the Federal Reserve's quantitative easing measures have failed.

The Fed's latest policy plan to stimulate the economy has been dubbed "Operation Twist."

"On September 30, the Fed started operation twist, by which it will sell its holdings of short-term Treasuries and use the proceeds to buy longer-dated T-bonds. The goal is to foster more credit by lowering long-term borrowing costs. But last month [we] noted that low rates compound the money-making problem for banks by reducing margins. 'Historical verification of this development is obvious from Japan,' says a recent report from Hoisington Investment Management. 'Normal bank lending functions are essentially shut down. This risk now confronts the U.S.' The problem is not the cost of credit; it's demand, which is waning. Lower rates will have little effect in helping foster enough expansion to allow the mountain of total credit-market debt built up over the last 70 years to be repaid, or even serviced." ~ Elliott Wave Financial Forecast, November 2011

Imagine if the newspapers reported that Bernanke appeared before Congress and said this:

"This is the most serious financial crisis we've seen, at least since the 1930s, if not ever."

Bernanke did not say that, but his counterpart in Britain did. As reported by The Telegraph (Oct. 6), the comment came from Sir Mervyn King, the Governor of the Bank of England.

The Fed is unable to stimulate the economy, the unemployment rate is not improving, and housing is in a "triple-dip" in some areas of the country. What does this mean for the markets and your investments in 2012?

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This article was syndicated by Elliott Wave International and was originally published under the headline "Darkest Days" for the Economy: Behind Us, or Just Ahead? EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.