I'm sad to say this is the last installment of PE; my other commitments are looming large and I really don't have the time to continue. Thanks to the MinnPost crew for hosting it, and best of luck to them in weathering the continuing economic troubles besetting everyone now. Most of all, thanks to you for reading and for all the intelligent, on-point comments.

I want to flag a couple of recent developments in the area of eroding state finances that make neat, if gruesome, bookends.

Sandy Lewis and William Cohan's lengthy NYT op-ed from Sunday is the best opinion piece I've read in the financial pages in a while. Lewis is a former Wall Streeter (convicted, no less) and Cohan is an editor at Fortune and the author of House of Cards. "We have both spent large chunks of our lives working on Wall Street," they write, "absorbing its ethic and mores. We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over--and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game."

This morning's BLS numbers show the unemployment rate jumping a surprising half-point to 9.4 percent even though the number of jobs lost came in at its lowest figure--345,000--since last September. The seeming discrepancy is explained nicely by the NYT's Peter Goodman and Jack Healy:

In a short, punchy essay at Counterpunch, Dean Baker reviews the economic statistics and the financial pages and finds a yawning gap:

"For example, National Public Radio told listeners that the new home sales figure reported for April was up from the March level. While this was true, the April figure was only 1,000 higher than a March level that had just been revised down by 5,000. April new home sales were 4,000 below the sales level that had originally been reported for March. USA Today touted a 'surge' in durable goods orders, which was also based on a sharp downward revision to the prior month’s data.

"The media have obviously abandoned economic reporting and instead have adopted the role of cheerleader, touting whatever good news it can find and inventing good news when none can be found. This leaves the responsibility of reporting on the economy to others."

Treasury Secretary Tim Geithner has gotten out of China with his skin intact, but just barely. Geithner wrapped up his two-day trip with the announcement that the two sides will meet again in Washington on the week of July 27. Chinese officials, Geithner said, had voiced "justifiable confidence in the strength and resilience and dynamism of the American economy."

The Chinese, apparently, have odd ways of expressing confidence.

Now that the inevitable deed is finally done, today's financial pages--and most especially the opinion sections--are full of indignation over the losses imposed on bond and stock holders and ominous ruminations over the precedent set by government's assumption of a 60 percent ownership stake in the fatally crippled carmaker. In principle the reorganization of GM and the liquidation of its worst-performing assets is is the right approach.

The must-reads:

1) The big story in credit markets this week has been the rise in Treasury yields. In most recessions, that would be taken as a sign of impending resurgence; in this one, it's also a threat to fragile credit conditions--particularly in home mortgage markets. From Tim Duy's Fed Watch ("A return to a nasty external dynamic?"):

Even as the economy plunged at a terrifying rate through the fall and winter, the long-range economic forecasts produced by the most prestigious institutions of government and finance barely wavered in their conviction that this downturn would be followed by a relatively quick return to GDP growth rates in the range of 3 percent--that is, a relatively quick return to normal. Employment recovery, alas, would lag compared to other key indicators, but the consensus was that if we could get past the panic phase of the financial collapse, we would be able to measure our distance from renewed prosperity in quarters going on years, not years going on decades.

This morning I talked to Mark Allen, the CEO of the Minneapolis Area Association of Realtors, about those abysmal Case-Shiller numbers for March that I wrote about yesterday--a 6.1 percent single-month drop in local sale prices that set a record not only for the Minneapolis/St. Paul metro but for all markets in the 20-city CS index in its 21-year history.

Actually, that's understating things a bit: The 6.1 percent decline in local housing prices was the biggest monthly drop recorded anywhere in the 21-year history of the Case-Shiller index [WSJ story] [WSJ table] [Case-Shiller release/PDF].  Detroit (-4.9 percent) and New York City (-2.5 percent) also registered record drops for those markets.

For a long time now, the reigning truism about housing market troubles has been that once the subprime defaults worked their way out of the system, we would have only the Alt-A loans--not-quite-prime loans obtained at higher interest rates in exchange for little or no documentation of borrowers' income, aka "liar loans"--to worry about. And since there were fewer of them and a lower expected default rate, the thinking went, there were grounds for believing that the worst of the housing bust was behind us.

Treasury Secretary Timothy Geithner committed to cutting the budget deficit as concern about deteriorating U.S. creditworthiness deepened, and ascribed a sell-off in Treasuries to prospects for an economic recovery.

"It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term," Geithner said in an interview with Bloomberg Television yesterday. He added that the target is reducing the gap to about 3 percent of gross domestic product, from a projected 12.9 percent this year.

The dollar extended declines today after Treasuries and American stocks slumped on concern the U.S. government’s debt rating may at some point be lowered. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. "eventually" will lose its AAA grade.

--Bloomberg, Geithner vows to cut U.S. deficit on rating concern

When Treasury Secretary Tim Geithner appeared before the Senate Banking Committee yesterday, he brought along an updated accounting of where the TARP money is going and how much is left. The Wall Street Journal's Real-Time Economics blog has the details.

Apart from a recent spike owing to auto industry layoffs, new unemployment claims have been declining for several weeks now. This is one of the "green shoots of recovery" frequently cited in the past month-plus.

Dean Baker looks at all the TARP recipients scrambling to pay back their government aid and get out from under the TARP restrictions on pay (NYT story) and wonders how many will simply turn to Fed and FDIC programs that have no such strings attached. Baker writes:

For months, insiders have known--and the financial press has occasionally pointed out--that a major crash in commercial real estate loan portfolios was on the way. For reasons having to do with business and finance cycles, CRE is always among the last sectors to feel the impact of recession and to emerge from a downturn once in its grip. Now a must-read analysis in this morning's Wall Street Journal makes clear how much this CRE dropoff would do to imperil the balance sheets of the country's small-to-midsized banks.

Via Economist's View, here's a snapshot of the Federal Reserve Bank of San Francisco's projection for the arc of the economy. It's a graphic illustration of what a "prolonged U-shaped recession"--which is now the consensus of most economic forecasters--looks like. As you can see, it makes the sluggish post-2001 recovery seem robust by comparison. And the FRBSF is assuming that the economy has already bottomed out, which remains to be seen.

The past month-plus has been a strange, schizoid time in the financial press. Talk of green shoots and recovery sits cheek-by-jowl with accounts of serious and chronic problems that show no sign of abating. The good news--banks are starting to lend to each other again, major economic indicators are no longer in the terrifying freefall of the autumn and winter, the stock market has made gains and at least for the moment held them, the public is feeling less freaked out--has inevitably dominated the headlines.

At the same time, there is plenty of sobering news about the debt monster that still looms over the economy.

You should read Nouriel Roubini's op-ed on the ascent of the Chinese remnimbi (commonly known as the yuan, though remnimbi is the more encompassing term) from a few days ago. Roubini limns out some of the long-term economic implications of the world's likely drift away from the dollar as the global benchmark currency: