The fear has receded, not just from the economy...but from our own souls.

We no longer feel it. Afraid? Why? We already faced death...and survived. Everything will be all right now. We count the months until we are even again.

And yet...when we look at the reasons for the fear last fall - they're still there.

The stock market has not been corrected. It could easily get cut in half in the next six months. (We're leaving our 'Crash Alert' flying over the building with the gold balls...until stocks reach bargain prices.)

The bond market could crash any time. The US is borrowing more money than ever before - trillions more. With such a huge increase in supply, demand...and prices...it should crack, sooner or later. Higher bond yields would send the whole economy into a much deeper depression.

Even our gold holdings could lose 20%-30% of their value. And gold stocks? They could get killed in the next stock market downswing.

Despite a truly monumental (albeit imbecilic) effort to revive the economy...the latest figures show the weakest post-recession recovery ever. Jobs are missing. Consumer credit is shrinking. Inflation is going negative. There is no real recovery...it's a mirage created by government spending.

Monetary policy is useless (banks won't lend; consumers won't borrow). And fiscal policy, while apparently more effective, destroys wealth; it doesn't add to it.

The more the government increases spending, to offset the correction, the more the economy becomes addicted to it. It's like trying to cure an alcoholic by introducing him to heroin. Take away the government spending - as Japan tried to do - and the economy collapses into a deeper depression. Not only that, but the budget deficit actually grows!

In other words, the feds spend money they don't have trying to fight a correction. This creates huge budget deficits, but it makes it look like the economy is recovering. So they slack off. Then, they discover that their fiscal stimulus didn't really create any genuine economic activity. Take away the fiscal stimulus and the economy collapses again...reducing tax receipts and widening the deficit. In effect, the cure became a disease of its own! Now they can't cut government spending. The economy depends on it. Instead, they're locked into a debt spiral...more and more deficits...higher and higher debt...down, down, down, until...

..until the whole thing finally crashes.

Japan faced this problem in the '90s. It eased off its stimulus program...and the economy collapsed. Now, it's become hooked on government spending. Where does it lead? We repeat this prescient note from The Telegraph, which we sent you yesterday:

"This is the year when Tokyo finds it can no longer borrow at 1pc from a captive bond market, and when it must foot the bill for all those fiscal packages that seemed such a good idea at the time...

"Once the dam breaks, debt service costs will tear the budget to pieces. The Bank of Japan will pull the emergency lever on QE [quantitative easing...aka 'printing money']. The country will flip from deflation to incipient hyperinflation..."

But we're not worried.

Somehow it will all work out. Americans are still trying to get even. They still believe that the stock market will recover - fully. They still think the Fed is in control...and that our economists know what they are doing. They are delusional, in other words.

Today is a big day for economists. The feds are supposed to tell us if the economy is still losing jobs...or not. They think December was a good month for employment in the US, and they believe they can prove it. If jobs are stable...or even rising...they will announce a great victory.

But whatever numbers come out, Daily Reckoning readers are advised to ignore them. The Labor Department treats its raw data like Baltimore treats raw sewage. It gets pumped up and churned out...and finally, dumped in the river. By the time it comes out, it doesn't smell so bad.

Here's John Crudele in The New York Post with more details...

"First, there will be invisible seasonal adjustments that will skew the figures.

"Since so few jobs were created in December 2008, the Labor Department's computers were probably expecting the same pattern in this latest Christmas season, meaning that few jobs would be created in 2009 as well.

"So even a small increase in jobs last month compared with December 2008 could be magnified in the accounting into something much bigger.

"And that one isn't even the biggie.

"Friday's figure will also be altered by job growth that the Labor Department is pretending has occurred at newly formed companies. The department calls this its birth/death model and by itself this assumption could be more destructive to the US economy than any terrorist attack could ever be.

"For instance, in December 2008 the Labor Department assumed that 60,000 jobs were created by infant companies that couldn't be surveyed, and weren't contacted, by its workers. Without that assumption, the job losses that month would have been worse than the almost incomprehensible figure of 681,000 that was publicly announced.

"The trouble is, those extra 60,000 jobs don't exist.

"The birth/death model since this past April has added an additional 900,000 jobs. And eventually those 900,000 jobs will probably also have to be extracted from the Labor Department's count.

"But it gets worse.

"Remember, it's called the birth/death model. And while the Labor Department adds jobs 11 months a year, it also subtracts jobs, the 'death' part, during one month.

"And that month is January.

"In January 2009, a stunning 356,000 jobs were removed from the overall count because of the birth/death model. That resulted in a much larger- than-expected loss of jobs during the first month of the Obama administration. The panic was palpable.

"Without a change, the Labor Department will subtract a similarly large number of jobs this January. And when that month's labor figures are reported on Feb. 4, watch out! The stock market will not like this. "

Bill Bonner