WASHINGTON -- Assuming it wins approval, the plan to rescue Wall Street is expected to fend off a potential meltdown of financial markets for now. But it won't cure much of what ails the struggling U.S. economy.

Many economists believe the nation is in recession, or so close to it that it's almost an academic question. The weekend compromise in Congress doesn't fix that, but it prevents things from getting worse by calming the jittery credit markets, which are vital to the ability of corporate America to fund itself through the issuance of short-term debt.

Finance is something that happens in the background, like the fan belt on a car's engine, a whirring that goes unnoticed over the sound of the road. Everything runs with the help of these credit markets, and when they stop working, as they did on Sept. 17, it gets attention quickly.

''People watch the stock market, but that is not the key here. The credit markets are the key,'' said David Wyss, chief economist for the rating agency Standard & Poor's in New York.

In recent weeks, hotel and other big construction projects have come to a halt as financing suddenly went dry, and automobile finance companies have suddenly found it hard to lend. Credit markets reflect an important intersection between Wall Street and Main Street.

WIDENING GAP

If credit markets respond positively this week, the gap between the interest on Treasury debt -- the safest place to lend money -- and other lending rates will narrow. This widening gap has hurt corporate America's ability to obtain needed short-term loans except at extremely high rates.

If this spread narrows, the problems of the past 10 days may be just a blip on the charts that make up a historical record of the American economy. If these markets remain in turmoil, there could be even more bank failures, and a fast accelerating economic slowdown.

''If history tells us one thing, it's that you cannot let these [modern-day] bank runs go on,'' Wyss said. ``You've got to stop it.''

A principal risk now for the American economy is that the spate of bad news will feed on itself, creating a downward spiral.

For example, the wave of bank failures and mergers is sure to lead to large layoffs in the financial sector, and already computer makers like Dell and Hewlett Packard have announced job cuts in the expectation of a worsening sales environment.

As the number of jobless people grows, the number of delinquent home loans increases. And defaults on car loans rise. More consumers will fall behind on credit-card payments, restaurants will shut their doors because they serve fewer diners, and fewer restaurants will mean less demand for farm and processed-food products. It's all interlinked and becomes a spiral.

For the moment, the unemployment rate stands at 6.1 percent. That's expected to increase when the Labor Department provides the September jobless numbers Friday. Today's unemployment rate is low by historical standards, but it is up by more than two percentage points since its low point in the summer of 2006.

''All 10 previous occasions in the postwar era when the unemployment rate has risen so much have been associated with recessions,'' said Michael Mussa, a former director of research for the International Monetary Fund, in a paper presented Friday on global economic prospects.

Given the sharp gap between the current and potential growth of the U.S. economy, Mussa said that for ``practical purposes, this magnitude of an economic slowdown should probably be regarded as a recession -- even if the exact timing of its starting and ending points is hard to specify.''

MORTGAGE ISSUE

Housing is front and center in the nation's economic problems and will be a determining factor for the speed and depth of recovery.

The rescue legislation will make available up to $700 billion in taxpayer money to remove bad mortgages and other distressed assets from the books of banks and other financial firms. The reason for doing so is that accounting rules that took effect in 2007 -- put in place partly because of the spectacular 2001 collapse of energy giant Enron -- force banks to provide a present-day value of these mortgage bonds every quarter.

Since housing continues to lose value month by month, banks have been going through wrenching write-downs of assets each quarter, forcing them to seek more capital to cover the widening losses on mortgage bonds that they are declaring quarterly.

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