An economic recovery seems to have begun, and Federal Reserve officials are thinking mostly these days about how to unwind the unprecedented stimulus they've pumped into the economy. Eventually that will mean raising interest rates.

What will a Fed tightening cycle look like? When will it begin? Fed officials don't have answers to either question yet, and investors would be wrong to think they do. But the contours of what a rate-boost cycle could look like are beginning to come into focus as the Fed's next policy meeting approaches Tuesday and Wednesday.

Three points emerge: First, an internal debate on tightening policy and how to communicate that to the market is only just beginning, and most officials don't believe the economy is near healthy enough yet to move toward tightening. Second, don't count on a tightening cycle to look like the last one. And third, the behavior of financial markets could take on added importance this time.

In the weeks ahead, officials are likely to begin elaborating on the economic outlook and speaking more directly about how that will affect their decisions about interest rates. Fed Vice Chairman Donald Kohn took a step in that direction in a late September speech, in which he pointed to how hard it will be to fill in the blanks for investors.....

The growing view that the economy is embarking on a self-sustaining recovery that could be similar in duration to the average expansionary cycle over the past century brings me to a new segment I like to call "Really!?! With Doug."

Of course, this is a takeoff from "Saturday Night Live's" Amy Poehler and Seth Meyers. If you are not familiar with their "SNL" schtick during their Weekend Updates, here are a few of their Really!?! segments.

Really, the economy is recovering? Really, economists?

I mean, really!?!

With globalization, wage deflation and with the prospects of tepid top-line sales growth, which corporations intend to expand their labor rolls?

So, there's going to be a meaningful return to jobs growth in 2010! Really!?!

And what happened to the previous forecasts that job creation would emerge in fourth-quarter 2009? I mean, really!

In the face of the withdrawal of government stimulus programs (2010), higher marginal tax rates (in 2011), costly health-care legislation, a low level of small business confidence, still relatively normal inventory-to-sales ratios and only a moderate improvement in demand, employers will soon to be forced to expand both hours and payrolls to meet demand? Really!?!

And, really, an economic recovery without job growth? According to the household survey, nearly 600,000 jobs were lost last month, and 15.7 million Americans are out of work. Really!?!

The credit mechanisms of the shadow-banking system and the securitization market remain adrift, and banks aren't lending. An economic recovery without credit? Really!?!

How about the state and local governments that have provided an anchor to growth in previous economic periods? Only two states have balanced budgets, and New York is letting out prisoners early to save money. Really!?!

And I imagine retail sales are going to firm up into a better-than-expected Christmas season? Really!?!

In the cast of corporate characters, Fannie Mae and Freddie Mac are A-list villains, thanks to the central role they played in the 2008 financial meltdown. The two mortgage-finance firms failed as spectacularly as AIG, the poster child for finance-gone-wrong, with the combined Fannie-Freddie rescue totaling about $111 billion so far—the biggest bailout of all. Both firms are effectively nationalized, and the government would probably wind them down except for one thing: They underwrite about three quarters of all the mortgages issued in the United States.

[See how the government is swallowing the economy.]

You've probably heard that the economy is recovering, that consumers are more optimistic, and that companies might soon begin hiring more workers than they're firing. Hooray. We'll all be thrilled when the economy stops quivering. The only problem with an upbeat prognosis is that large chunks of the U.S. economy remain addicted to financial painkillers or dependent upon dysfunctional institutions like Fannie and Freddie, and we've never gone through the kind of withdrawal that's set to take place this year. If all goes well, we'll avoid messy complications, such as these:

.....Buffett said the slow economic recovery the nation is experiencing now is related to the financial excesses of previous years, when many people and companies spent beyond their means.

"I thought it would be slow to come back and it has," Buffett said. "The hangover is sort of proportional to the binge."

Buffett said he thinks government should be more focused on the economy than health care reform right now, but he again praised government efforts to stabilize the economy during the financial crisis even if they haven't been perfect.

"The government came through. Overall, I give them high marks for what they did," Buffett said.

Buffett said he thinks banks that received bailout money are being vilified by politicians and the public because they're an easy target, but much of the criticism is misplaced......

Billionaire George Soros , Nobel laureate Joseph Stiglitz and Roubini Global Economics LLC Chairman Nouriel Roubini return to the Swiss ski resort this week warning the economic recovery will prove weaker than financial markets are betting and the 10- month rally in Global Stocks may falter.

Investors are lining up against the pessimists, who were lauded at last year’s meeting of the World Economic Forum for predicting the economic and financial crisis. The MSCI World Index of Stocks is up 67 percent since March, as money managers at companies including BlackRock Inc. , the world’s largest asset manager, and Barton Biggs’s Traxis Partners LP buy equities partly on the expectation the recovery will strengthen.

“The bears continue to preach,” Bob Doll , vice chairman and chief Investment officer for Global equities at New York- based BlackRock, said in a Jan. 6 presentation. “We lean to the bull case.”

BlackRock predicts the Standard & Poor’s 500 Index will end the year at 1,250, up 13 percent from the Jan. 22 close, and the 10-year Treasury note will yield almost a percentage point more at 4.5 percent. Biggs began 2010 projecting a 10 percent gain in Stocks and the dollar.....

Mohamed A. El-Erian, whose firm runs the world’s biggest mutual fund, said the largest stock market decline in 11 months may worsen amid persistent U.S. joblessness and economic growth that trails analysts’ forecasts.

Investors have wrongly priced in an “orderly” withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth, the chief executive officer of Pacific Investment Management Co. wrote in a Bloomberg News column. That means Wall Street projections for gains in 2010 may prove incorrect and prices will slump, he said.

“Investors may well find that January’s global equity sell-off was just a precursor to a disappointing year for several asset classes,” El-Erian, 51, wrote. “The global financial crisis has undermined growth and job creation; it has clogged many of the pipes that allocate funds to productive uses; and it has rapidly taken public debt and the budget deficit to worrisome levels.”

The Standard & Poor’s 500 Index fell 3.7 percent in January, more than any month since February 2009, after China set higher reserves for lenders and U.S. President Barack Obama proposed curbs on risk taking at banks. The retreat pared the S&P 500’s gain since sinking to a 12-year low in March to 59 percent. The MSCI Emerging Markets Index lost 5.7 percent last month, also the biggest decrease since February.....

.....Optimists, Pessimists

Allen Sinai, chief global economist at Decision Economics in New York, splits the difference between the optimists and pessimists, forecasting growth of about 3 percent in the second half and 2.5 percent to 3 percent next year. What worries him is what might happen afterwards, as President Barack Obama’s administration battles to reduce unemployment at the same time it’s trying to reduce what the White House projects will be a record $1.6 trillion federal budget deficit in the year ending Sept. 30.

The dilemma, as Sinai sees it: Cut the deficit by raising taxes or reducing spending, and risk slowing down the economy and pushing up unemployment. Spur job creation through tax credits for new hires or infrastructure spending, and blow out the budget, risking the ire of foreign investors.

“We’ve got to deal with the legacies of the great recession and the policies we used to get out of it,” he said. “The expansion could end up being relatively short.”

If you listen to the mainstream media long enough, you just might be tempted to believe that the United States has emerged from the recession and is now in the middle of a full-fledged economic recovery. In fact, according to Obama administration officials, the great American economic machine has roared back to life, stronger and more vibrant than ever before. But is that really the case? Of course not. You would have to be delusional to believe that. What did happen was that all of the stimulus packages and government spending and new debt that Obama and the U.S. Congress pumped into the economy bought us a little bit of time. But they have also made our long-term economic problems far worse. The reality is that the U.S. cannot keep supporting an economy on an ocean of red ink forever. At some point the charade is going to come crashing down.

And GDP is not a really good measure of the economic health of a nation. For example, if you would have looked at the growth of GDP in the Weimar republic in the early 1930s, you may have been tempted to think that the German economy was really thriving. German citizens were spending increasingly massive amounts of money. But of course that money was becoming increasingly worthless at the same time as hyperinflation spiralled out of control.

Well, today the purchasing power of our dollar is rapidly eroding as the price of food and other necessities continues to increase. So just because Americans are spending a little bit more money than before really doesn’t mean much of anything. As you will see below, there are a whole bunch of other signs that the U.S. economy is in very, very serious trouble.....

Could Wall Street be about to crash again?

This week's bone-rattlers may be making you wonder.

I don't make predictions. That's a sucker's game. And I'm certainly not doing so now.

But way too many people are way too complacent this summer. Here are 10 reasons to watch out.

1. The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That's well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you're getting paid well to take risks, they may make sense. But what if you're not?

2. The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should drive down long-term interest rates. Great news for mortgage borrowers. But hardly something one wants to hear when the Dow Jones Industrial Average is already north of 10000.

3. Too many people are too bullish. Active money managers are expecting the market to go higher, according to the latest survey by the National Association of Active Investment Managers. So are financial advisers, reports the weekly survey by Investors Intelligence. And that's reason to be cautious. The time to buy is when everyone else is gloomy. The reverse may also be true......

The average combined debt for bank-issued credit cards -- like those with a MasterCard or Visa logo -- fell to $4,951 in the three months ended June 30, down more than 13 percent from $5,719 in the same period a year ago, according to TransUnion.

More borrowers also made payments on time. The rate of cardholders past due by 90 days or more fell to 0.92 percent in the second quarter, from 1.17 percent last year.

It's been a brutal summer for the economy. The housing sector, like a balloon batted in the air one last time by the government credit, resumed its inevitable fall. Economic growth slowed to a lead-footed 1.6 percent, and job growth is even more anemic. Meanwhile, consumers are cranky, the trade gap is gaping.

Most signs point to a slow and steady recovery, but what if the pessimists are right, again? What if the United States isn't in the slow-lane to recovery, but rather on the precipice of another decline -- a double dip?

To see where this re-recession might begin, my colleague Dan Indiviglio and I imagined five financial earthquakes, each with a single epicenter: housing, consumers, toxic assets, Europe, and the debt. The following five scenarios are listed in order of likelihood.....

For the better part of a year now, a small band of investors and economists has been arguing that the torrent of grim news on jobs and the stagnating American economy is shrouding an immutable fact: the recovery is at hand, you just cannot see it yet.

At a time that fear-stricken hedge funds are stocking up on gold, retail investors are fleeing the stock market in droves and gloom-peddling economists like Nouriel Roubini are commanding the airwaves, putting forward a bullish view for stocks can be lonely, dispiriting work, The New York Times’s Landon Thomas Jr. reports.

But for investors like John A. Paulson, the hedge fund executive who made billions of dollars by betting on a housing crash, Bill Miller, the mutual fund manager at Legg Mason best known for his 15-year streak of beating the Standard & Poor’s 500-stock index, as well as a few others, all that presents an opportunity.....

I am a huge bull on this country...We will not have a double-dip recession at all. I see our businesses coming back almost across the board..."

Warren Buffett tells CNBC that by his own "common sense" definition, the United States is "still in a recession."

In a taped interview with Becky Quick airing this morning on CNBC's Squawk Box, Buffett says, "I think we're in a recession until real per capita GDP gets back to where it was before."

While Buffett continues to believe the U.S. will eventually emerge from its economic downturn, "We're not gonna be out of it for awhile."

This is not what a recovery is supposed to look like.

In Atlanta, the Bank of America tower, the tallest in the Southeast, is nearly a fifth vacant, and bank officials just wrestled a rent cut from the developer. In Cherry Hill, N.J., 10 percent of the houses on the market are so-called short sales, in which sellers ask for less than they owe lenders. And in Arizona, in sun-blasted desert subdivisions, owners speak of hours cut, jobs lost and meals at soup kitchens.

Less than a month before November elections, the United States is mired in a grim New Normal that could last for years. That has policy makers, particularly the Federal Reserve, considering a range of ever more extreme measures, as noted in the minutes of its last meeting, released Tuesday. Call it recession or recovery, for tens of millions of Americans, there’s little difference.

Born of a record financial collapse, this recession has been more severe than any since the Great Depression and has left an enormous oversupply of houses and office buildings and crippling debt. The decision last week by leading mortgage lenders to freeze foreclosures, and calls for a national moratorium, could cast a long shadow of uncertainty over banks and the housing market. Put simply, the national economy has fallen so far that it could take years to climb back.....