You can watch financial newscasts and read reports all day long, but there’s one dreaded “d-word” you won’t encounter: deflation.

Still, that threat remains the biggest behind-the-scenes concern of economic policy makers, and has everything to do with why the Federal Reserve is keeping interest rates at zero. Their code language for deflation says, “There is no inflation.”

You can watch financial newscasts and read reports all day long, but there’s one dreaded “d-word” you won’t encounter: deflation.

Still, that threat remains the biggest behind-the-scenes concern of economic policy makers, and has everything to do with why the Federal Reserve is keeping interest rates at zero. Their code language for deflation says, “There is no inflation.”

But every reality on the street indicates that the value of things, in general, is nosediving, and the imminent rise of fuel costs will only escalate that trend. The rising cost of that indispensable basic economic component will cause not inflation, but intensified austerity, resulting in a steeply declining demand, over-supply and deflation, given a double-digit unemployment environment.

We simply have no idea yet of what the “new normal” will look like.

Not only are there no new jobs, but uber-thousands of new layoffs are coming in July as state and local governments across the nation, and their school systems, are required by law to balance their budgets to close their record gaps between costs and vanishing revenues.

Home values continue to fall in key areas of the country, and the worst of the housing crisis hasn’t hit yet. The highest portion of sub-prime mortgages were taken out at the height of the real estate bubble in 2006, and most were of the adjustable-rate variety with inordinately low monthly payments for the first five years, and set to triple or worse after the first five years.

Those resets come next year, meaning that 2011 will see a ratcheting up of the national economic crisis far beyond what we’ve seen to date.

Government measures taken in the last year or so to prevent a virtually-overnight meltdown of the national and global economic system have failed to prevent a longer-term outcome that augers to be just as bad.

Instead of stimulating growth, the banking system has pulled back even further in its lending practices, an astonishing and troubling development.

With 702 banks at risk of failure now, the Federal Deposit Insurance Corporation reported this week that lending by the U.S. banking industry declined by the largest annual percentage since the 1940s, when the nation was struggling to wobble its way out of the Great Depression.

Instead of having lending go up, as federal stimulus efforts run through the Small Business Administration and other agencies intended, it shrunk by an incredible 7.5 percent in 2009, or $587 billion.

The much-touted small businesses of America, hailed as the salvation of the unemployed and the foundation stone of the economy, are being strangled by these constraints. No lending, no growth, and to the extent there is no certainty that the situation will change, they are recasting their operations and goals to long-term hunkering down mode: more job and other cuts, and limiting new hiring to part-time hires at best, with no benefits.

Moreover, there is the imminent bursting of the commercial real estate bubble, being pressured by double-digit office vacancy rates and the inability of small businesses and retailers to honor lease terms.

Then there’s China and the national debt.

It is stunning in this context to hear how Wall Street and Washington are talking up a recovery that simply isn’t there. Both have vested interests in putting the nation into yet another “willful suspension of disbelief,” hoping that a groundless optimism will cause people to act foolishly by reverting to old patterns of spending what they don’t have.

However, the credit cards are burned out or canceled, there are no loans to be had, and no ability to extract equity out of homes because almost half the nation’s homeowners now owe more on their homes than they are worth on the market. People are selling their jewelry and gold fillings just to get by, and the impact of all this on traditional big ticket items, from luxury vacations to new cars to box seats at baseball games, much less ordinary discretionary spending, is only just now beginning to be felt.

This so-called recovery is all sizzle and no steak, as they said in the 1980s, when one presidential campaign in the depths of an earlier recession evoked the image of that classic TV commercial showing a shriveled lady examining a competitor’s burger and exclaiming, “Where’s the beef?”