This has been a most peculiar summer. In the U.S. it has been blazing hot, while across Europe the weather has been unseasonably cool. Despite an increasing number of momentary flashes of societal breakdown, from Athens and London to Philadelphia and Vancouver, the social mood has been relatively calm. In fact, it has been almost too calm, as if the usual instigators of unrest are concerned that creating the usual sparks might set off a conflagration that would threaten to engulf them as well.

The markets are in a precarious state, too. The Dow is behaving erratically, with giant movements both upward and downward, but predominantly down, in much the same way that it was behaving in the bear market that ran from October 2007 to March 2009. That downward slide took more than 50 percent off the Dow, and a repetition of similar magnitude would be expected to bottom around 5,000. Should that happen, we can reasonably anticipate that gold, which has risen from $320 in 2002 to $1,850, will be approaching the 1:1 ratio that Robert Prechter predicted back when the ratio was 50:1.

There is no hope on the political side. Obama is a shell-shocked disaster. My June 2010 prediction that he will be so politically eviscerated by the summer of 2012 that he will not win the Democratic nomination, which echoed an even earlier prediction by Pete Ferrara of the American Spectator, is looking ever more likely as his approval ratings slip down into the 30s. The Gallup daily poll of Aug. 11-13 had him at 39 percent, with a 54 percent disapproval rating. The Rasmussen Reports daily approval index had even worse news for Obama as he hit a new nadir of -23 on Aug.16.

But there is no salvation being offered on the Republican side. Even Ron Paul, who is the only fiscally sane candidate on offer, appears to have a nonsensical position on immigration. An America with an employment-population ratio that has actually fallen below the 1973 level of 58.2 – the Bureau of Labor Statistics reports an EPR of 58.1 in July 2011 – has absolutely no need of any immigrants, still less tens of millions of immigrants driving wages down while pushing up the unemployment rate. But Paul is at least coherent on the financial unsustainability of the foreign wars, as well as the current levels of government borrowing and spending.

The other candidates, including the media-dubbed front-running trio of Mitt Romney, Rick Perry and Michele Bachmann, are as bad or worse on immigration as Paul while being even worse on the wars and the federal budget. What we have is a bipartisan political class that is not only at war with economic gravity, but economic reality itself. Perhaps the most astonishing example is the New York Times and Nobel Prize-winning economist Paul Krugman’s bizarre attempt to explain that the government can borrow as much as it wants without affecting interest rates without bothering to take the law of supply and demand into account!

But don’t be fooled. This is not a Democratic problem, and there is no Republican solution. The politicians are not the moronic ignoramuses they appear to be. They understand that there is no way out of the debt-deflation spiral that will not wreak economic havoc on the nation. They have been attempting to quietly inflate their way out of the situation for the last three years, hence the zero interest rates, the 89 percent increase in government borrowing, the bipartisan collusion to raise the debt ceiling and the 8.3 percent increase in the money supply over the last year. It isn’t working. Consumer prices have risen, but wages haven’t. Housing prices continue to fall, and consumer debt continues to decline.

This holding pattern is not going to hold. Once the attempt to prop up the economy with government spending even slackens, and there are definite signs that we are rapidly approaching this point, such as the S&P downgrade, the markets are going to collapse and GDP with it. The historical method of dealing with this situation is to fight a war, but with six unpopular wars already ongoing, this would not appear to be a politically feasible option.

This summer, Americans find themselves depressed and discontented. Neither the social mood nor the economy is likely to improve with the change of seasons, which is why wise and informed Americans should already be preparing for the next stage in the economic process that began in 2007 and looks to be resuming later this year. Although, if history is any guide, it won’t be recognized until 2012.

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