The one-year anniversary of the 2008 global financial-market implosion passed with little fanfare.  With the U.S. stock market soaring throughout the spring and summer, the Pollyannas of the American media preferred to focus their attention on the return of good times while ignoring all that ancient ugliness of last year.  In September 2008, at the height of the crisis, most financial prognosticators predicted nothing but gloom as they gazed into their crystal balls.  Yet one year later U.S. equity markets have risen over 50 percent from the March 2009 trough, interest rates on U.S. government debt hover at historic lows, and housing is already rebounding in some markets.

While the stock market’s performance over the last six months has surprised even many bullish investors, danger lies ahead.  Numerous data highlight the persistent economic rot that contributed to the crash of 2008.  The present administration has ramped up deficit spending to an unprecedented level.  The dollar has weakened against all major currencies.  The miniscule interest rates paid on government bonds, representing the latest financial-asset bubble, have drawn cautionary remarks from Chinese and German authorities.  The “official” unemployment rate has reached 10 percent, while the more realistic unofficial rate has blown past 16 percent.  American banks, saddled with toxic mortgages and underwater derivative securities, have survived solely thanks to the taxpayers’ reluctant largesse.  And now the FDIC has reported that it will be insolvent by the end of October.

This litany of troubles does not support the recent rise in stock prices.  If anything, each of these red flags should be telling Americans that the crisis, like the war in Iraq, will last longer, cost more money, and hurt more Americans than even the direst predictions at first assumed.

The collapse of 2008 reshaped the American financial landscape.  Fannie Mae and Freddie Mac, who in flusher times proposed that their long-term debt should replace the 30-year U.S. Treasury bond as the benchmark interest-rate product, now function as wards of the state.  Washington Mutual, Countrywide, and Merrill Lynch each jumped into the arms of supposedly more stable competitors.  And Lehman Brothers vanished as a result of its management’s colossal hubris.  AIG, the largest recipient of taxpayer pelf, continues to astound analysts with its reverse stock splits and the ungrateful pronunciamentos of its latest caudillo from his weekend crash pad in Croatia.

The decline in the average American’s net worth merits further discussion.  With their houses worth some fraction of their 2007 peak and their stock portfolios down 25 percent on average, American consumers will be less apt to consume at their previous ravenous pace.  As investors receive their wilting monthly brokerage statements, the wealth effect will deter big-ticket purchases.  But this slowdown will not be all bad.  Consumers shed their last inhibitions about consumption for the sake of consumption sometime during the Internet Bubble of the Clinton years.  A recent example details just how ridiculous consumer excess, and the accompanying debt, became.  On September 26, the New York Times described one borrower who got deeper into trouble as the 2008 crisis approached: “In April 2008, according to bankruptcy records, he began using a Discover card.  May 2008: a Shell card.  June 2008: five new credit cards.  July 2008: three more, including ones from Sony and Radio Shack.  August 2008: two more.”

The Times also detailed this credit-card junkie’s insolvent personal-income statement.  On $800 of monthly income, he ran up $1,108 in expenses every month, including $450 for rent and $390 for food.  Why bother living within your means when 11 credit-card companies are willing to fund your profligacy?

But this story has an even scarier twist.  In this specific case you might have heard of the irresponsible spendthrift.  He is Najibullah Zazi, the aspiring terrorist now being held without bail for plotting to mark the anniversary of September 11 by blowing something up in New York City.  While the rest of us fill out “Know Your Client” forms at brokerage offices to prove that we are neither money launderers nor drug dealers, Al Qaeda-trained terrorists exploit the countless credit-card solicitations clogging the postal system.  Even though corporations are amoral by design, it should not be too much to ask that they not abet terrorists intent on killing the residents of the country in which they are domiciled.  Indeed, the funny money that resulted from years of Federal Reserve pump priming has come back to haunt us in a way that even the most creative neocon scare-mongers never imagined.

Setting aside his alleged terrorist aspirations, Najibullah Zazi typifies the financially overextended American.  His bankrupt balance sheet is a microcosm of the federal government’s parlous financial position.  Our foreign lenders have taken note of our financial predicament even though Congress refuses to recognize it.  In May, Chinese students at Peking University laughed in the face of Treasury Secretary Timothy Geithner when he told them that “Chinese assets are very safe,” in reference to their country’s investments in U.S. government bonds.  If the dollar were to lose its status as the world’s reserve currency and as the unit of account in the global oil market, U.S. interest rates would soar, likely crushing the domestic economy, if not putting an end to our postwar global financial hegemony.  On the bright side, Najibullah Zazi and his friends might have trouble financing their monstrous schemes.