People wondering why Federal Reserve Chairman Ben Bernanke suddenly moved to reduce the bank borrowing rate by three quarters of a point should know that in private he has expressed growing pessimism about the economy. Whispers has learned that has told people in recent weeks that the economic situation some see falling into recession will be much worse than he has admitted to publicly. 

We're told by those who've heard him that he says the first six months of this year will be "bad," an adjective that some interpret this as signaling there is better than a 50-50 chance for a recession. Even worse, the former Princeton prof believes the ensuing recovery will be "weak" because of persistent problems in the housing market that will result in subdued consumer spending.

But Republicans stand for superfree markets and deregulation, and if one factor is responsible for today's troubles, it is overlax regulation of the financial markets. If anything, this crisis stems from an excess, not a lack, of free enterprise. Government is traditionally reviled by Republicans as part of the problem, but it is to government that Americans now largely look for a way out of the mess.

The specter of stagflation - or stagnant economic growth combined with inflation - is a growing concern among economists. 

The last time the U.S. economy went through a severe bout of stagflation was in the late 1970s and early 1980s. 

Steve Andrews, vice president of capital markets at Sovereign Bank in Boston, said he’s not convinced yet that stagflation will occur. But he said if it does, it will “really knock the economy on its heels.”

Forget the turbulence in the financial markets and the subprime debacle. Forget the dark clouds of a possible recession. Bloomberg News tells us that the top securities firms are handing out nearly $38 billion in seasonal bonuses, the highest total ever.

But there’s a reason to temper the celebration, if only out of respect for an old friend who’s not doing too well. Even as the Wall Streeters are high-fiving and ordering up record shipments of Champagne and caviar, the American dream is on life-support.

I had a conversation the other day with Andrew Stern, president of the Service Employees International Union. He mentioned a poll of working families that had shown that their belief in that mythical dream that has sustained so many generations for so long is fading faster than sunlight on a December afternoon.

The poll, conducted by Lake Research Partners for the Change to Win labor federation, found that only 16 percent of respondents believed that their children’s generation would be better off financially than their own. While some respondents believed that the next generation would fare roughly the same as this one, nearly 50 percent held the exceedingly gloomy view that today’s children would be “worse off” when the time comes for them to enter the world of work and raise their own families.

That absence of optimism is positively un-American.

“These are parents who cannot see where the jobs of the future are that will allow their kids to have a better life than they had,” said Mr. Stern. “And they’re not wrong. That’s the problem.”

Record bonuses on Wall Street at a time when ordinary working Americans are filled with anxiety about their economic future are signs that the trickle-down phenomenon that was supposed to have benefited everyone never happened.

The rich, boosted by the not-so-invisible hand of the corporate ideologues in government, have done astonishingly well in recent decades, while the rest of the population has tended to tread water economically, or drown.

A study released last month by the Pew Charitable Trusts noted that “for most Americans, seeing that one’s children are better off than oneself is the essence of living the American dream.” But for the past 40 years, men in their 30s, prime family-raising age, have found it difficult to outdistance their dads economically.

As the Pew study put it: “Earnings of men in their 30s have remained surprisingly flat over the past four decades.” Family incomes have improved during that time largely because of the wholesale entrance of women into the work force.

For the very wealthy, of course, it’s been a different story. According to the Congressional Budget Office, the after-tax income of the top 1 percent rose 228 percent from 1979 through 2005.

What seems to be happening now is that working Americans, and that includes the middle class, have exhausted much of their capacity to tread water. Wives and mothers are already working. Mortgages have been refinanced and tremendous amounts of home equity drained. And families have taken on debt loads — for cars, for college tuition, for medical treatment — that would buckle the knees of the strongest pack animals.

According to Demos, a policy research group in New York, “American families are using credit cards to bridge the gaps created by stagnant wages and higher costs of living.” Americans owe nearly $900 billion on their credit cards.

We’re running out of smoke and mirrors. The fundamental problem, the problem that is destroying the dream, is the extreme inequality pounded into the system by the corporate crowd and its handmaidens in government.