Will the Fed Stay in Control or Not?

Fed Stands Pat But Shows Its Hand
http://online.barrons.com/article/SB125737428832429223.html


Two potential codicils to Randy might be:

1) While the administration (like the rulers of Argentina) may think that they have stimulative fiscal policies by spending lots of money on consumption, they have EXACTLY THE OPPOSITE fiscal policies on those who produce.

Thus, it is little wonder that the jobless rate is high - because after all, those who want jobs would be producers as well as consumers.

2) In terms of low interest rates and currencies, it is being widely discussed that the foreign central banks that have been purchasing the Treasuries that the Obama Administration is producing like confetti may start to have second thoughts about both the revival of the US economy and the willingness of the government to confront its overspending (note: I'm not saying undertaxing - in fact, just the opposite).

So, while printer Ben may see the need, along with a majority of the prognosticators, to keep rates low in the hope of stimulating the economy, what is going on in the Congress and White House may force a change. Either rates will have to rise to keep attracting foreign lenders; or, rates will rise to crowd out domestic borrowers, sucking capital out of the economy to support social spending.

In light of fiscal breaks on production and the open spending spigot of the administration, the possibility of a much more severe economic downturn with high interest rates, high taxes and high joblessness doesn't seem terribly remote.