The happiest days are the saddest; the easiest times are the hardest; vacations are when the real work is done. Most of the year, we keep our heads down…working, going to school, doing what we must do. Then, on vacation, we look around us, and the world has changed. More below…

In the meantime, we remind readers that we are on vacation this week; don't expect any serious reckoning.

The Dow fell 180 points on Monday. On Tuesday, it dropped 130 more.

Yesterday came more evidence that credit is still getting crunched. CDO defaults are increasing; CDO values are in "free fall," says the Financial Times.

Lehman Bros. is expected to announce a $4 billion write-down.

Single family housing permits are at a 26-year low; homebuilding is at a 17-year low. Naturally, suppliers - such as Home Depot - are reporting lower profits.

What is needed in the United States, says an article in the International Herald Tribune, is a "long period of frugality." No doubt about that. Thanks largely to reckless and dishonest credit cues from the Greenspan Fed, more people made more financial mistakes than at any time in history. It will take years of scrimping and saving to correct them. We don't have to tell you what that means; less spending = less GDP growth = recession. A long, slow recession a la Japan.

Many investors are now betting that the whole world economy will fall into a soft, Japan-like nap. They're buying the dollar…and U.S. Treasury bonds…as a protection. But we caution Daily Reckoning readers that there are big differences between the United States and Japan…between the dollar and the yen…and between today's globalized economy of 2008 and Japan, Inc. of 1990. In a nutshell, Japan could drop into a cushy bed of savings and sleep for a decade or two. When the United States gets knocked down, on the other hand, Americans fall onto the cold concrete of debt. Rather than live off the credits they built up over the past 20 years, they'll have to service the debt they incurred.

The U.S. is still running a trade deficit of about $2 billion per day. In order to continue financing that shortfall, it has to guarantee the rest of the world that its dollar will be at least as solid in the future as it has been in the past. But in a severe downturn, the pressure to let the dollar slip will increase.

All through the '90s, the Japanese maintained a positive trade balance…and a strong yen, with falling consumer prices. Japan tried to stimulate the economy by running huge fiscal deficits and lending money at zero interest. The economy did not recover; but it didn't collapse either.

But when the feds become desperate to revive the U.S. economy - if it comes to that - the results could be calamitous. More on that as the story unfolds.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.