But even after the Federal Reserve's extraordinary efforts to prevent the collapse of Bear Stearns from spreading to other financial institutions, the danger still lurks that banks will grow even tighter with their funds and will starve the economy of capital.

“If lenders and debtors don't trust each other, that causes a power outage,” said Michael T Darda, chief economist at MKM Partners. “And that's where we are now.” Until recently, Darda was among those still holding to the notion that the economy could generate enough jobs to keep the economy rolling. But the private sector has shed jobs for three consecutive months. Darda is now worried.

“We'll be lucky to make it out of this without something that looks like a recession,” he said. On Thursday, FedEx, whose global courier business tends to rise and fall with swings in the economy, reported that its earnings actually dropped in the US and warned that in future months it expected to fall well short of its customary double-digit annualised profit gains.

“We just aren't going to be able to do that,” Alan Graf, FedEx's chief financial officer, said in a call with Wall Street analysts. “The crystal ball for everybody is very cloudy here.”

For now, there are still pockets of prosperity across the country. Farmers are enjoying record crop prices as the adoption of ethanol makes corn a way to fill gas tanks, and as rising incomes in China, India and elsewhere spell growing demand for meat. The weak dollar is helping exporters and retailers that cater to foreign tourists.

... contd.