Aug. 13 (Bloomberg) -- With U.S. stocks and the dollar on the upswing and commodities heading south, hope springs eternal that the worst of the credit crisis may be behind us.

What started out as scattered problems with sketchy subprime loans somehow managed to infect the broader housing market, batter the biggest financial institutions, bring Bear Stearns Cos. down and Fannie Mae and Freddie Mac to their knees, decimate the derivatives market, and cause businesses to cut payrolls and consumers to curtail spending.

In other words, the entire U.S. economy save the export sector is feeling the aftershock. And with growth now slowing in Europe and Japan, export demand may be at risk.

A year from now things will no doubt look better than they do now. Banks have already reported losses and writedowns of a half trillion dollars; forecasts of $1 trillion no longer seem far-fetched.

It's still too early to break out the champagne. Here are just a few reasons why.

I. Crystal ball cloudy, ask again later.

During the late 1990s stock market bubble, it became fashionable for technology executives to talk about ``visibility'' when referring to future earnings.

It took until the end of 2001, with the Nasdaq Composite Index down 70 percent from its highs, for this perennially perky bunch to admit they had ``no visibility.''

It wasn't that they couldn't see. What they saw looked pretty lousy.

So it was with some interest that I noticed Daniel Mudd, chief executive officer of Fannie Mae, adopting the same language -- less visibility -- when the company reported a $2.3 billion second-quarter loss, boosted provisions for future losses and slashed its dividend to 5 cents a share from 35 cents.

With Fannie's share price diving to $7 last month from almost $70 a year ago, it's not uplifting to hear CEOs accentuate the negative. Only three months ago, they were taking us out to the ol' ballgame, saying the crisis was ``in the eighth inning or maybe the top of the ninth,'' in an attempt to boost their stock price.

When CEOs try to lower your expectations, watch out.

II. Don't Write Off the Banks

In this highfalutin' age when every loan is (or was) sold, securitized, sliced, diced and sold again, banks were said to be insulated from any kind of mortgage-related credit risk.

Honest. I'm not making this up. I wrote a column about it in April 2006. At the time, mortgages and mortgaged-back securities accounted for 44 percent of bank balance sheets, according to the Federal Reserve's quarterly Flow of Funds report. As of the first quarter of 2008, the no-exposure-to-mortgages share stood at 41 percent.

History holds some lessons on what happens when the banking system is impaired. If the Great Depression is too idiosyncratic for you, try the early 1990s in the U.S. following the collapse of savings and loans and Japan's lost decade of the 1990s.

``In the early 1990s, U.S. commercial banks suffered from capital inadequacy, and the U.S. economy suffered from bank credit inadequacy,'' writes Paul Kasriel, chief economist at the Northern Trust Corp. in Chicago, in his latest economic outlook. ``Throughout the decade of the 1990s, Japanese banks suffered from capital inadequacy, and the Japanese economy suffered from bank credit inadequacy.''

There's more to come on the credit side, he says. ``We're working our way into prime mortgages, credit cards, car loans and commercial mortgages.''

The Fed's July senior loan officer's survey, released earlier this week, found that 65 percent of commercial banks had tightened their lending standards on credit card and other consumer loans over the past three months, 60 percent had tightened them on prime mortgage loans, and 80 percent on commercial real estate loans.

Hotels and mall operators are finding themselves with too much capacity or too little demand.

III. Affairs of State

The next hit to the economy is apt to come from a cutback in state and local government spending, Kasriel says.

With state tax revenue in the first quarter of 2008 climbing at the slowest pace since 2003, state governments are cutting spending to close budget deficits, according to the Rockefeller Institute of Government. Sales taxes fell for the first time in six years.

State and local government spending, adjusted for inflation, accounts for 11 percent of real gross domestic product, according to Kasriel. That's ``one percentage point less than exports and about 1.7 times larger than federal government spending. A slowdown in the growth of state and local government expenditures is significant.''

IV. Reflections in a Golden Eye

Magazine covers, which tend to prominently feature a phenomenon after it has run its course and thereby act as contrarian indicators, have given good signals for the turns in oil and stock prices recently, according to Paul McCrae Montgomery, president of Montgomery Capital Management LLC in Newport News, Virginia, who studied magazine covers going back to the 1920s.

The fact that the periodicals in question were business journals, which by definition pick business themes for the cover, and not general interest magazines like Time and Newsweek, ``diminishes the significance somewhat,'' Montgomery says.

Only when things get bad enough for Time and Newsweek to publish an end-of-the-world cover will it be time to uncork the champagne.

(Caroline Baum, author of ``Just What I Said,'' is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

Last Updated: August 13, 2008 00:05 EDT