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Fragile and cautious: An optimist might use these words to describe the state of the world's economic recovery. Nervous and scary might be the pessimist's choice of words.

The news from China is excellent, as usual. From Japan, where the rising yen is stunting growth, the news is mixed. From Europe, it depends where you are. Germany is emerging nicely, Britain is experiencing the fallout from a tough budget and France is living in a bit of a la-la land, with a deficit of 8 per cent of GDP.

For Canada, what counts is the United States, notwithstanding efforts to diversify trade. There, the news is, well, gloomy. Unemployment remains above 9 per cent; growth is slow; states continue to cut spending to balance budgets; investment is shaky; housing is up from the crisis but remains way down from pre-crisis levels; and the federal budget is a complete disaster, with no prospects of the country's politicians doing anything about it.

Earlier this year, Canada had hoped for a stronger U.S. recovery, for the obvious reason that our economy is so tied to the American one. In the first half of the year, it looked as if such a recovery might be under way, until the U.S. economy stalled.

Since the late spring, forecasters have been revising their estimates of U.S. growth downward - which means, by definition, that Canada can't grow, or at least is much less likely to grow, as fast as the Harper government had hoped earlier this year.

Somewhat slower growth will mean a slower upturn in government fortunes than had been anticipated, which, in turn, means slower improvement in the federal deficit through economic growth. From this flows two possibilities: The government will push back the effort to balance the budget, or it will keep on track but cut spending somewhat more robustly.

Remember, though, that Canada has a minority government, which will make severe spending cuts difficult to sell politically. So the path of least resistance, the one the Harper government is following, is likely to be the one it will pursue even if the economy slows: a measured reduction in spending, a crossed-fingered waiting for economic growth, a five-year time frame for budget balance, and cuts only to the growth in the defence budget and absolute cuts to foreign aid.

Canada can definitely grow a little faster than the U.S. and, if its politicians have any common sense, deal more effectively with this country's relatively manageable deficit problem more easily than their U.S. counterparts with their country's deficit.

It's scary and disheartening to observe our American friends fleeing from fiscal reality. Conservatives, more rabid than ever, advance further tax cuts as the elixir for all problems, when all evidence suggests that such cuts will make the country's fiscal crisis worse. Liberals who demand even more stimulus to bolster a weakening economy talk airily about eventually doing something about the deficit without seriously grappling with the challenge.

The U.S. midterm elections will certainly give Barack Obama's Democrats heartburn, in the sense that the party will lose seats in the House and Senate, and perhaps even control of one legislative body. The result will be more invective, more obstruction, partisan battling, dysfunctional politics and an ever-worsening fiscal situation - with negative effects for the world economy.

God, patriotism, a Muslim mosque in Manhattan, Tea Party rallies, Glenn Beck, abortion and a host of other distractions have all but eliminated moderate Republicans from the political scene, the kind that used to worry seriously about frugality.

When almost 20 per cent of Americans tell pollsters they believe their president is a Muslim, you wonder where they're getting their information. Under such circumstances, it's no wonder economic fantasies (that tax cuts will cure everything, for instance) sell more easily than straight talk.

While these worrisome developments unfold, the U.S. trade deficit is shooting up again, its borrowing requirement is rising, the flows of money in the world remain completely unbalanced, and prospects for genuine, broad-based world recovery stay cloudy. Slow growth and big deficits are a bad combination.

Alas for Canada, given our links to the U.S. economy, clouds there mean unsettled weather here.

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