Employers kept hiring at a steady pace in April and the government revised up job tallies for February and March, easing fears that the economy is tumbling into a spring slump and propelling blue-chip stocks to record highs.

Nonfarm payrolls rose by 165,000 last month and the jobless rate ticked down to 7.5%, the lowest level since December 2008. The Labor Department also significantly raised hiring estimates for the two prior months, by a combined 114,000 jobs.

But the job gains in April, which were tilted toward the retail and business-services sectors, come alongside mixed signals for the economy almost four years into the recovery. While the housing and auto sectors are accelerating after years of industry turmoil, other major sectors are showing signs of trouble. In short: The Federal Reserve is looking for more broad-based and sustained job growth before easing up on its easy-money policies.

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The economy lurched this spring into an even lower gear, from manufacturing to services to construction, leaving the Federal Reserve poised to prolong or expand its bond-buying stimulus.

Central bankers Wednesday kept benchmark rates near zero and quantitative easing purchases at $85 billion a month. But changes in their statement highlighted shifting emphasis.

"The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes," it said.

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Commodity prices have been falling since September, culminating in a rout over the past two weeks. That is a classic warning for the global economy.

It is becoming ever clearer that the roaring boom in global equities since last summer has priced in an economic recovery that does not in fact exist. The International Monetary Fund has had to nurse down its global growth forecasts yet again. We are still stuck in an old-fashioned trade depression, with pervasive over-capacity in manufacturing plant and a record global savings rate of 25pc of GDP.

German car sales fell 17pc in March. That should puncture the last illusions that Germany is about to pull Europe out of a self-inflicted slump.

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MarketWatch: Since Nixon’s “abomination” as you call it, we have had some periods where government spending to GDP actually went down, like during the Clinton era. Doesn’t that show it’s just the choices made by Congress rather than the Fed to blame [for the problem of rising national debt as a % of GDP]?

Stockman: There is the issue that Congress ultimately is the fiscal authority. But my argument is, when the Fed becomes a massive buyer of bonds and debt and artificially suppresses interest rate below market-clearing levels, it’s a terrible signal to the Congress that debt is cheap, that running deficits is a viable strategy. So therefore they are induced to kick the can, to let it drift and avoid hard choices. Who wants to tell the public you are going to take your broccoli of higher taxes and lower benefits and spending if you can issue debt on a three-year basis for 40 basis points. That’s free. I was in Congress, they don’t do decimal math, OK? And they think the money is free, it’s a bad problem philosophically, we shouldn’t be doing this for the great long run, but it’s no harm today.

Then they have professors like Krugman who give them the disingenuous advice that the bond vigilantes don’t care. The market is saying, “fine with us, we don’t care, keep piling the debt on, we love it.” That is so much baloney. The reason the interest rate on the 10-year bond 10_YEAR -0.33% today is 1.8% or whatever it happened to settle today, is the market knows the Fed is buying half of the debt and is front running the Fed. And it is renting the bond on repo, 98 cents on the dollar, based on overnight money that’s free thanks to Bubbles Ben as well.

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Thanks largely to the U.S. Federal Reserve, Jeffrey Nelson was able to put up a shotgun as down payment on a car.

Money was tight last year for the school-bus driver and neighborhood constable in Jasper, Alabama, a beaten-down town of 14,000 people. One car had already been repossessed. Medical bills were piling up.

And still, though Nelson's credit history was an unhappy one, local car dealer Maloy Chrysler Dodge Jeep had no problem arranging a $10,294 loan from Wall Street-backed subprime lender Exeter Finance Corp so Nelson and his wife could buy a charcoal gray 2007 Suzuki Grand Vitara.

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Top officials at the US Federal Reserve took months to realise that the 2007 financial crisis would rock the world’s largest economy, according to an embarrassing set of meeting transcripts released on Friday.

The transcripts reveal that some Fed policy makers viewed the market turmoil, which erupted in August 2007 on the back of problems in the market for subprime mortgage loans, as good news because markets were pricing in more risk.

The records of the Federal Open Market Committee’s 2007 meetings, which are released with a five-year delay, raise the question of whether the recession would have been less severe if the Fed had reacted faster instead of continuing to forecast steady growth.

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Update: A Washington Post article is here.

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Understanding the developing attitude of the central banks, and the effects of their actions, obviously remains central for investors in all financial assets. The “big picture” for global financial assets, involving very low government bond yields and a gradual shift of risk appetite into credit and equities, is unlikely to change until one of two events takes place.

The first would be a decision by the central bankers themselves that the era of unlimited quantitative easing must end, either because of the risk of inflation and asset price bubbles, or because of concerns about fiscal dominance over the monetary authorities. The second would be a realisation by the markets that further action by the central bankers is irrelevant because they have run out of effective ammunition. Either of these events would probably remove the central prop from the equity bull market which began in March, 2009, but neither seems very likely in 2013.

There is certainly no sign that the central bankers themselves will call a halt to the extension of their balance sheets.

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The actions on the eve of the Fed’s centenary year underscore Bernanke’s hallmark commitment to experimentation and forceful action, derived in part from his research showing too little monetary stimulus produced large economic costs for the U.S. in the 1930s and for Japan in the 1990s. He called the current state of the labor market, with unemployment at 7.7 percent, “an enormous waste of human and economic potential” and said the benefits of more bond buying outweigh the potential risks.

“Bernanke is pulling out all the stops to kick this economy back into a higher gear,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “They are buying everything in sight -- Treasuries, mortgage-backed securities -- and will keep rates low until everyone who wants a job has one.”

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Update: Brian Milner has some interesting thoughts on this there.

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The Federal Reserve refashioned its bond-buying programs on Wednesday, extending its far-reaching effort to revitalize the jobs market and boost the economic recovery into 2013.

In addition, the Fed shifted its communications strategy by specifying the levels of unemployment and inflation that might prompt it to begin raising short-term interest rates, which are now near zero.

The central bank's policy committee, in its final meeting of the year, said Wednesday it would "initially" begin buying $45 billion of long-term Treasury bonds each month. The latest stimulus from the Fed will replace an expiring program known as "Operation Twist," in which the Fed has been buying about $45 billion of long-term Treasury bonds each month and selling about the same amount of short-term Treasurys.

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Indeed, the impact of this latest round of unconventional monetary policy is already fading. Analysts at Morgan Stanley this week decided that returns in the high-yield market were no longer attractive in the face of deteriorating fundamentals. The stock market is struggling to make further headway, while yields on mortgage-backed securities have started to turn up after an initial drop. A drop in third-quarter capital expenditure suggests the Fed policy hasn’t been a catalyst for corporate investment at all.

One major reason for the lack of effectiveness of this latest round of quantitative easing may well be a growing concern with the “fiscal cliff”, automatic US tax rises and spending cuts due to kick in on January 1. Uncertainty over “cliff risk” – and the prospects of a deal in Congress on deficit reduction – seems to be offsetting any positive impact of Fed policies.

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The FBI on Wednesday arrested a Bangladeshi man in a sting operation on charges he attempted to blow up the New York Federal Reserve Bank with what he believed was a 1,000-pound (450-kg) bomb, federal authorities said.

Quazi Mohammad Rezwanul Ahsan Nafis, 21, faces charges of attempting to use a weapon of mass destruction and attempting to provide material support to al Qaeda, the U.S. Department of Justice said in a statement. If convicted, he faces life in prison.

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From an interview with the authors of the Simpson-Bowles reform plan and Goldman Sachs CEO Lloyd Blankfein:

"...We just met with -- a dozen of the largest high-tech company CEOs in the country. Not only are they hoarding cash. All their customers, all their suppliers are. They're scared to death we're going to go over this cliff and it could be a catastrophe...."

You can find a summary article to read there, it has briefer video links, but the best use of your time is to watch the full interview over here or read the transcript (about 42 1/2 minutes). Also, David Brook's piece on the debt indulgence is worth a careful revisit.

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The greatest risk to US financial markets stems from other countries’ willingness (or lack thereof) to continue to hold dollar reserves as the value depreciates. If those nations suspect that the US cannot maintain the strength of our currency, they will begin to drain assets from American banks – seeking safer havens for their wealth. That could entail trading US treasury bonds for perceived “safer” currencies such as those of New Zealand or Canada or even switching to an entirely different asset class such as gold or silver.

While there may not be any significant signs of capital flight yet, just look east. The Chinese are the largest, external holder of US debt. And they’re already heading down this path – dropping the share of their portfolio comprised of US dollar assets from 74 to 54 percent in the last five years. It may very well be a harbinger of what’s to come.

Attempting to counter fears fanned by trends like this, Bernanke talks of a “soft landing...”

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Federal Reserve officials debated the risks of beginning an ambitious new stimulus policy before ultimately giving it a green light, according to minutes of the central bank’s September meeting released Thursday.

The minutes show officials concerned during their two-day meeting that without further action, the unemployment rate could remain stubbornly high. Officials were also troubled by signs of slowing growth abroad, including in China, and the possibility of a so-called fiscal cliff at home.

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Americans have poured record amounts of money into savings accounts even though interest rates are at historic lows, new federal data show, a sign that average people may be missing out on a booming stock market and recovering real estate sector.

The total amount in those accounts climbed nearly 5 percent to $6.9 trillion in the spring, the highest level recorded since the Federal Reserve launched its regular reports on the flow of money in the economy in 1945. At the same time, other data show that Americans are fleeing the stock market and avoiding the purchase of new homes.

The pattern suggests that Americans, wounded by the financial crisis and scared by an uncertain job market, do not want to take any risks with their money — even as the government is encouraging risk-taking.

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The Federal Reserve’s announcement Thursday is a big deal.

It’s a big deal because of what they’re doing. They’re buying $85 billion in assets every month through the end of the year, and then they’re potentially going to keep doing it in 2013. They’re promising to keep interest rates low through the recovery, and then keep them low after the recovery strengthens.

But it’s a bigger deal because of what they’re saying. Thursday, the Federal Reserve said, finally, that they’re not content with 8 percent unemployment and a sluggish recovery, and they’re willing to actually do something about it. If you’re an investor or a business owner trying to decide what the market is going to look like next year, you just got a lot more optimistic.

Read it all and there is more (with reasons for concern) there.

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The Fed chairman said the central bank intends to be “forceful . . . in supporting a sustainable recovery.” With Europe’s financial crisis and the United States’ looming budget cuts and tax hikes posing major risks for the recovery, he said, economic growth is “far from satisfactory,” and he pledged the Fed will take additional steps to help the economy as needed.

As is common of Fed pronouncements, Bernanke hinted but offered no certainty of action to come. Still, the urgent tone of his remarks will leave investors disappointed if the Fed does not launch new stimulus at its Sept. 12-13 policymaking meeting. Investors seemed hopeful, with stocks trending up by about 1 percent in the early afternoon.

“We must not lose sight of the daunting economic challenges that confront our nation,” Bernanke said. “The stagnation of the labor market in particular is a grave concern, not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.”

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Federal Reserve officials in their last meeting discussed a “number of policy tools” that the central bank might use to further stimulate the economy in the face of the weakening recovery, an official account released on Wednesday said, but they remained in wait-and-see mode.

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” the account of the meeting that ended Aug. 1 said.

With few signs of a substantial and sustainable strengthening evident this summer, the report will likely solidify investors’ expectations that the bank will take new measures this fall.

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Over at Capital Economics they’re spotlighting Aug. 9, 2007 as the “the unofficial onset of the global credit crunch” making tomorrow the fifth anniversary of, well, the beginning of the end of the uber-loose financial conditions that begat the U.S. housing boom, bust, financial crisis, bailout-a-palooza, deep recession and — if you believe Reinhart and Rogoff — the economic sluggishness we’re still contending with.

Of course, it’s a little bit squishy declaring any one moment the “start” of something. Some would argue that the birth of the securitization market way back in the 1980s might have been the true start of what eventually became the U.S. housing morass. Still, it’s instructive to remember what was going on in early August 2007, which was when the cracks in the foundation of global finance really started to get noticeable and the themes that have come to define the market for the last half-decade started to emerge.

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The greatest economic catastrophe of the postwar world began five years ago today. Its consequences are still with us.

On this day in 2007 BNP Paribas, the French bank, halted withdrawals from three investment funds linked to the US subprime mortgage market. Risky financial products had spread a contagion of bad debts through the banking system. The interbank lending market froze because banks feared that they would not get their money back. The consequences included the first run on a British bank in more than a century (Northern Rock), the biggest corporate failure in American history (Lehman Brothers), and a huge recession.

With hindsight, this was not merely a crisis but a catastrophe that still overshadows the global economy. The crash was a far-reaching problem of solvency. It was not simply a banking crisis, but a debt crisis. It has not simply sunk financial institutions, but submerged governments too. Five years on, there are three questions. How did it happen? When will it end? What, if anything, can we do about it?

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The Federal Reserve is heading toward launching a new round of stimulus to buck up the weak economy, but stopped short of doing so right away.

The decision to make what amounted to a conditional promise of action came Wednesday at the end of the central bank's two-day policy meeting. In an uncharacteristically strong statement, the Fed said it will "closely monitor" the economy and "will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions." Translation: The Fed will move if growth and employment don't pick up soon on their own.

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One bad jobs report is a blip. Three’s a trend. And the United States has now seen three weak jobs reports in a row. Through the first quarter of 2012, the U.S. economy was creating an average of 226,000 jobs per month. In the second quarter? Just 75,000 jobs per month.

So what can be done about the sputtering economy? Congress could try to pass more stimulus. But Congress is deadlocked — Republicans are opposed to further action. That puts the spotlight on the Federal Reserve and Ben Bernanke. Right now, unemployment is falling more slowly than the Fed expected when it issued its forecasts back in April. Here’s the chart, courtesy of the Council on Foreign Relations....

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The Federal Reserve announced Wednesday a modest increase in its efforts to reduce borrowing costs for businesses and consumers by extending its existing “Operation Twist” asset-purchase program through the end of the year.

The decision reflects growing concern that the economy once again is stumbling into the summer months after the false promise of a relatively strong winter. The Fed now expects the unemployment rate to fall no lower than 8 percent this year, and inflation to rise no higher than 1.7 percent, both signs of an ailing economy.

Fed officials also have indicated a desire to insure against a pair of looming risks, that events in Europe will freeze global financial markets and that the political stalemate in Washington over fiscal policy will undermine the domestic recovery.

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The U.S. recovery is hobbled by an economic divide that separates Americans not by income or wealth but by their access to credit....

Last year, nearly 90% of all new mortgages originated went to households with high credit scores; before the financial crisis, it was about half, according to Moody's Analytics and Equifax Inc., a credit monitoring service.

Shrunken access among credit have-nots is triggering more than personal plight. It has weakened the influence of the Fed—one of the best hopes for spurring stronger economic growth—and raised doubts within the central bank about whether it is doing much to reduce unemployment.

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The recent recession wiped out nearly two decades of Americans’ wealth, according to government data released Monday, with middle-class families bearing the brunt of the decline.

The Federal Reserve said the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on par with where they were back in 1992.

The data represent one of the most detailed looks to date of how the economic downturn altered the landscape of family finance. Over a span of three years, Americans watched progress that took almost a generation to accumulate evaporate. The promise of retirement built on the inevitable rise of the stock market proved illusory for most. Homeownership, once heralded as a pathway to wealth, became an albatross.

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The recession ended and the recovery began in June, 2009. It's an ugly third birthday for the labor market

More than 7 million U.S. jobs disappeared during the recession. Fewer than 3 million have been added in the recovery. And the rate of job growth has been falling lately; in May, the economy added just 69,000 jobs. That's not even enough to keep up with population growth.

Read it all and look at all the visual displays.

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Some of the same spoilers that interrupted the recovery in 2010 and 2011 have emerged again, raising fears that the winter’s economic strength might dissipate in the spring.

In recent weeks, European bond yields have started climbing. In the United States and elsewhere, high oil prices have sapped spending power. American employers remain skittish about hiring new workers, and new claims for unemployment insurance have risen. And stocks have declined.

There is a “light recovery blowing in a spring wind” with “dark clouds on the horizon,” Christine Lagarde, managing director of the International Monetary Fund, said Thursday....

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Here’s a breakdown of the numbers. The report, citing White House budget office figures, estimated $46 billion of costs under the Troubled Asset Relief Program to support struggling homeowners. It showed $2 billion of overall gains on the Treasury’s investments in various bailed-out companies, such as American International Group Inc. (AIG), some of which are held outside of TARP. Other Treasury programs to buy mortgage-backed securities and to guarantee money-market funds would produce $26 billion of gains, the report said.

Add up those categories, and the projected net cost so far is $18 billion. On top of that, there’s the current net cost of the government-sponsored housing financiers Fannie Mae and Freddie Mac, which the Treasury pegged at $151 billion. So how did Treasury project a potential gain overall?

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Higher commodity prices, however, are a cost borne by businesses and consumers and this has mitigated the economic stimulus provided by prior bouts of QE. Higher equity prices, alas, can’t offset pain at the petrol pump and the supermarket for many consumers.

All that raises the prospect that introducing QE3 simply runs the risk of entrenching the economy in its post-financial crisis mode of a stop and start recovery.

In fact, advocates of QE3 are really betting that the Fed will err far more on the side of risking much higher inflation in the long run as it seeks to lower the unemployment rate towards 7 per cent.

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...if anyone is eager for encouraging signs, it’s worth pointing out that the very broadest measure of unemployment actually improved this month. This is the U-6 metric, which tallies up all unemployed persons, plus people marginally attached to the labor force, plus people employed part-time for economic reasons. Jim Pethokoukis likes to call this “perhaps the truest measure of the labor market’s health.” And U-6 dropped from 14.9 percent in February to 14.5 percent in March. Anyone trying to dig around for optimistic signs should start there.

Still, it’s a weak report all around. And we’ll know in a few months if March was actually as tepid as everyone thinks. In theory, the real significance of this report should be whether it convinces Ben Bernanke and the Federal Reserve that a little more monetary stimulus is needed. But how likely is that? The unemployment rate is roughly in line with what the Federal Open Market Committee has been expecting. And if the Fed’s content with the current state of affairs, then more help may not be on the way after all.

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Federal Reserve policymakers have backed away from the need for another round of monetary stimulus as the U.S. economy gradually improves.

Minutes of the central bank's meeting published on Tuesday showed only two of the policy-setting Federal Open Market Committee's 10 voting members saw the case for additional monetary stimulus.

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We have finally reached the point in our financial history where even bankers hate bankers.

Last week, the Federal Reserve Bank of Dallas issued its 2011 annual report with a 34-page essay, "Why We Must End Too Big To Fail -- Now." The report stops short of calling our nation's largest banks terrorists, but it does dub them "a clear and present danger to the U.S. economy."

It begins with a letter from regional Fed president Richard Fisher. "More than half of banking industry assets are on the books of just five institutions," he complains. "They were a primary culprit in magnifying the financial crisis, and their presence continues to play an important role in prolonging our economic malaise."

This is not the Tea Party. This is not Occupy Wall Street. This is not some disgruntled Goldman Sachs guy firing off a nastygram to the New York Times on his last day. This is a member of the Federal Reserve itself -- an institution that bears responsibility for our banking system devolving into an untenable oligarchy that buys off politicians, captures regulators and eats up our money. This is a member of the establishment saying Too-Big-To-Fail, or TBTF, must die.

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Conventional wisdom has advanced competing theories: Wall Street types took too many risks, encouraged by lax government regulation; or pro-homeownership policies eroded mortgage-lending standards and created the housing bubble.

Actually, both theories are correct — and neither is....

[The real foundation was laid with Paul Volcker's]... decisive defeat of double-digit inflation in the early 1980s.

All the good news (low inflation, high employment, rising stock and real estate prices) drove economic growth. Between 1982 and 2007, there were only two mild recessions. When prosperity was jeopardized — by the 1997 Asian financial crisis, the tech crash in 2000, the 9/11 attacks — the Federal Reserve seemed to defuse the threats. The economy seemed less risky. Economists announced the Great Moderation of business cycles.

Booms become busts because justifiable confidence becomes foolish optimism. So it was. Believing the world less risky, people took more risks. Investment banks and households increased their debt. Lending standards eroded, because borrowers’ repayment prospects were thought to have improved. Regulators relaxed oversight, because markets seemed more stable and self-correcting. On the fringes, ethical standards frayed; criminality increased. The rest, as they say, is history.

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[CHRIS] ARNOLD: In other words, without the rest of the economy doing better, will the recovery in the jobs market stall out?

Lawrence Katz says that idea is troubling, because even the job growth that we're seeing right now isn't great and we need it to get much stronger.

[LAWRENCE] KATZ: Even if we had a very rapid recovery, we have a huge distance to go still. We are still 10 million jobs behind. So it would take basically four years of strong job growth to get back to a normally functioning labor market.

ARNOLD: So slower job growth would mean an even longer period of high unemployment and economic hardship for millions of Americans.

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America is back. You can tell because Americans are maxing out their credit cards again.

Household debt grew at an annualized rate of 0.25% in the last quarter of 2011, according to the Federal Reserve's flow-of-funds report released last week. That's not a big jump, but until now there hadn't been any uptick at all in household debt since the 2008 crash.

"Consumers have been more willing to use credit cards for shopping, signaling renewed confidence in their financial and job prospects," explained Paul Edelstein, director of financial economics at IHS Global Insight, in a recentAssociated Press report.

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Federal Reserve Chairman Ben Bernanke threw cold water on the improving economic outlook Wednesday, saying further significant declines in unemployment are not likely without stronger economic growth.

"Continued improvement in the job market is likely to require stronger growth in final demand and production," Bernanke told the House Financial Services Committee in his semiannual report to Congress on monetary policy.

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The Federal Reserve said on Wednesday that it was likely to raise interest rates at the end of 2014, but not until then, adding another 18 months to the expected duration of its most basic and longest-running response to the financial crisis.

The announcement means that the Fed does not expect the economy to complete its recovery from the 2008 crisis over the next three years. By holding short-term rates near zero beyond mid-2013, its previous estimate, the Fed hopes to hasten that process somewhat by reducing the cost of borrowing.

The Fed said in a statement that the economy had expanded “moderately” in recent weeks, but that unemployment remained at a high level, the housing sector remained in a deep depression, and the possibility of a new financial crisis in Europe continued to threaten the domestic economy.

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In his second meeting as chairman of the Federal Reserve in May 2006, Ben Bernanke heard a Fed governor warn about the nation's mortgage market. But Mr. Bernanke described the cooling of the housing boom as a "healthy thing."

"So far we are seeing, at worst, an orderly decline in the housing market," he said.

Mr. Bernanke's words were contained in 1,197 pages of transcripts released Thursday of closed-door Fed meetings from that year. The transcripts paint the most detailed picture yet of how top officials at the central bank didn't anticipate the storm about to hit the U.S. economy and the global financial system.

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I maintain that no matter how much cash you have on your balance sheet, or how compliant your banker might be, or how cheap the cost of money, you will not commit substantial capital to expanding your payroll or investing significant amounts to expand plant and equipment until you know what it will cost you to run your business; until you know how much you will be taxed; until you know how federal spending will impact your customer base; until you know the cost of employee health insurance; until you are reassured that regulations that affect your business will be structured so as to incentivize rather than discourage expansion; until you have concrete assurance that the fiscal “fix” the nation so desperately needs will be crafted to stimulate the economy rather than depress it and incentivize job creation rather than discourage it; or until you are reassured that the sinkhole of unfunded liabilities like Medicare and Social Security that Republican- and Democrat-led congresses and presidents alike have dug will be repaired so that our successor generations of Americans will prosper rather than drown in dark, deep waters of debt.

My colleague Sarah Bloom Raskin—one of the newest Fed governors, and a woman possessed with a disarming ability to speak in non-quadratic-equation English—recently used the example of the common kitchen sink to illustrate a point. I am going to purloin her metaphor for my description of our present predicament. You give a dinner party. The guests leave and you are washing the dishes. When you are done, you notice the remnants of the party are clogging the sink: bits of food, coffee grinds, a hair or two and the like. You have two choices. You can reach down and scoop up the gunk, a distinctly unpleasant task. Or you can turn the water on full blast, washing the gunk down the drain, providing immediate relief from both the eyesore and the distasteful job of handling the mess. You look over your shoulder to make sure your kids aren’t looking, and, voilà, you turn the faucet on full blast, washing your immediate troubles away.

From my standpoint, resorting to further monetary accommodation to clean out the sink, clogged by the flotsam and jetsam of a jolly, drunken fiscal and financial party that has gone on far too long, is the wrong path to follow. It may provide immediate relief but risks destroying the plumbing of the entire house. It is a pyrrhic solution that ultimately comes at a devastating cost. Better that the Congress and the president—the makers of fiscal policy and regulation—roll up their sleeves and get on with the yucky task of cleaning out the clogged drain.

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There is a fascinating new study coming out of the Levy Economics Institute of Bard College. Its titled “$29,000,000,000,000: A Detailed Look at the Fed’s Bail-out by Funding Facility and Recipient” by James Felkerson. The study looks at the lending, guarantees, facilities and spending of the Federal Reserve.

The researchers took all of the individual transactions across all facilities created to deal with the crisis, to figure out how much the Fed committed as a response to the crisis. This includes direct lending, asset purchases and all other assistance. (It does not include indirect costs such as rising price of goods due to inflation, weak dollar, etc.)

The net total? As of November 10, 2011, it was $29,616.4 billion dollars — (or 29 and a half trillion, if you prefer that nomenclature). Three facilities—CBLS, PDCF, and TAF— are responsible for the lion’s share — 71.1% of all Federal Reserve assistance ($22,826.8 billion).

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Wall Street executives, in a private meeting with a top Federal Reserve official in late September, recommended a coordinated effort by central banks to remedy the European financial crisis, according to Fed documents received in an open-records request.

The meeting, led by Louis Bacon, founder of hedge fund Moore Capital Management, preceded a joint action Wednesday by the world's major central banks, which banded together to provide liquidity to the markets through cheap U.S. dollar loans....

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The world's major central banks launched a joint action to provide cheap, emergency U.S. dollar loans to banks in Europe and elsewhere, a sign of growing alarm among policy makers about stresses in Europe and in the global financial system.

The coordinated action doesn't directly address Europe's government-debt and budget woes. Instead, it is aimed at alleviating the impact of those troubles on global markets. Moreover, it raises the prospect of other steps by central bankers to prevent a repeat of the 2008 financial crisis.

"The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," said a statement issued by the six central banks—the U.S. Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank.

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The dam is breaking in Europe. Interbank lending has seized up. Much of the financial system is paralysed, setting off a credit crunch just as Euroland slides back into slump.

The Euribor/OIS spread or`fear gauge’ is flashing red warning signals. Dollar funding costs in Europe have spiked to Lehman-crisis levels, leaving lenders struggling frantically to cover their $2 trillion (£1.3 trillion) funding gap.

America’s money markets are no longer willing to lend to over-leveraged Euroland banks, or only on drastically short maturities below seven days. Exposure to French banks has been slashed by 69pc since May.

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Ms. [Nancy] Lazar is among a group of well-connected investors and analysts with access to top Federal Reserve officials who give them a chance at early clues to the central bank's next policy moves, according to interviews and hundreds of pages of documents obtained by The Wall Street Journal through open records searches. Ms. Lazar, an economist with International Strategy & Investment Group Inc., wouldn't comment for this article.

The access is part of a push by hedge funds and other traders to get more information about the inner workings of government. Developments in Washington have become more important after the financial crisis in 2008 spawned new regulations and a stronger hand by lawmakers in businesses.

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The Congressional Budget Office on Tuesday downgraded its estimate of the benefits of President Obama’s 2009 stimulus package, saying it may have sustained as few as 700,000 jobs at its peak last year and that over the long run it will actually be a net drag on the economy.

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The European debt crisis is raising the odds of a U.S. recession, with economic contraction more likely than not by early 2012, according to research from the San Francisco Federal Reserve Bank.

While it is difficult to gauge the odds precisely, an analysis of leading U.S. economic indicators suggests a rising chance of a recession through the end of the year and into early next year, researchers at the regional Fed bank wrote on Monday. The risk of recession recedes after the second half of 2012, they found.

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The chairman was asked if the outlook of the U.S. economy was so gloomy, why would the Fed wait to enact more monetary policy. Bernanke said the Fed has been very aggressive. He said what the Fed has are projections, so "it's important to see what happens." One thing economists have said over the past few months, is that the Fed is running out of economic tools. But Bernanke ruled that out, saying the Fed still has a "broad range of policies" to stimulate the economy.

However, he called on the political arm of the United States to help the Fed.

"I hope there will be a broad range of actions that complements" Fed policy, he said.

— On Europe's sovereign debt crisis, Bernanke said their woes have been drag on a U.S. recovery, but it's up to Europe's leaders to make the decisions.

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Americans must not be smug about the suffering of Europeans—our financial system is thoroughly integrated with theirs. Moreover, the International Monetary Fund will most likely be involved in the event of future bailouts and will likely need large funds from its members, which ultimately means the taxpayers.

And, of course, the U.S. has its own large and growing public debt burden. We have not gone as far down the road to entitlements, but we are catching up. If you want to know how the debt crisis will play out here, watch the downward spiral in the EU.

Meanwhile, expect more volatility in financial markets. U.S. traders in particular simply have not grasped the enormity of the EU debt crisis.

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The crisis of the euro zone has finally hit the potholed road of real politics, with the Greeks now openly questioning whether their commitment to Europe and its single currency still matters more to them than control over their own future and economic well-being.

During the two-year financial crisis, the wealthier countries of northern Europe, led by Germany, have insisted that their heavily indebted brethren in the south radically cut spending in return for emergency loans. They have stuck to that prescription even though austerity has undermined growth and increased unemployment in Greece, Spain, Portugal and now Italy, betting that people in those countries will swallow the harsh medicine because their only alternative is to default and possibly leave the euro zone altogether.

The turmoil in the government of Prime Minister George A. Papandreou means that Greece is about to call that bet. Many Greek politicians appear to be calculating, at this late stage, that they have more to lose by sticking to Germany’s terms than by risking a messy default, and even going it alone with their old currency, the drachma, outside the euro zone.

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...rare is the analysis that traces all these problems back to the structural change in money that was brought about in the early 1970s.

We went from a hard-money regime, in which there were restrictions on the power of central banks and financial institutions to create money and credit, to one where money became purely paper. There were no restrictions remaining on the power of governments to finance unlimited debt. Banks could create credit seemingly without limit. Central banks became the real power in the world economy.

None of this was true under a gold standard. That system limits the expansion of credit by an indelible physical fact. There was a limit, a check, a rule that went beyond the whim of financial masters and politicians. The Vatican seems to understand this.

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Financial turmoil in global markets continues to play havoc with the value of the U.S. dollar, but technology continues to make the transfer of donor dollars to missionaries quicker and easier.

American missionary income in China has dropped 25 percent in recent years because of the dollar's decline against the Chinese yuan, said a missionary leader who requested anonymity. "In 24 years of missionary ministry, I have never seen things as tough as they are now."

"It's a complaint we hear almost every day," says Bill Bray of Christian Aid Mission, which supports indigenous missionaries in 122 nations. "They need more money because of the exchange rate."

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The United States will likely suffer the loss of its triple-A credit rating from another major rating agency by the end of this year due to concerns over the deficit, Bank of America Merrill Lynch forecasts.

The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit, the bank said in a research note published on Friday.

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"A total of 37 punchings was made for every bond."

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After a weekend of tense meetings among world finance officials here, euro-zone leaders were weighing options to maximize the size of their bailout fund by borrowing against it. The move could provide trillions of dollars of firepower to rescue governments and banks—-but only if all 17 euro-zone legislatures approve a two-month-old agreement to broaden the bailout fund.

Highly public opposition from Germany, the largest and most powerful euro-zone economy, could block the plan.

Policy makers are "focused on their own internal restraints, so that we don't have the outcome that we need," Antonio Borges, head of the International Monetary Fund's Europe department, said Sunday. While key players were understandably acting in self-interest, he said, it was generating "disastrous" collective results.

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The reserve powers would be well advised to pull out all the stops to save Europe and its banking system. Together they hold $10 trillion in foreign bonds. If they agreed to rotate just 4pc of these holdings ($400bn) into Spanish, Italian, and Belgian debt over the next two years, they could offer a soothing balm. None has yet risen to the challenge. It is `sauve qui peut', with no evidence of G20 leadership in sight.

Once again, the US has had to take charge. The multi-trillion package now taking shape for Euroland was largely concocted in Washington, in cahoots with the European Commission, and is being imposed on Germany by the full force of American diplomacy.

It is an ugly and twisted set of proposals, devised to accomodate Berlin's refusal to accept fiscal union, Eurobonds, and an EU treasury. But at least it is big.

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There are many more reasons for concern. The continuing inability of Europe to cope with the euro troubles, the political impasse over economic policy in the United States, and the deer-in-the-headlights immobility of Japan do not inspire confidence. The emerging economies — China, India, Turkey and Brazil — face increased difficulties of their own and will not pull the global economy out of the dumps. That large corporations are sitting on cash hoards or buying back stock rather than making new investments is bad news; that consumers are cutting down debt and doing what they can to increase their savings is good news for the long term, but bad news now. And it seems clear that two years of frantic efforts in Washington have failed to breathe new life into the nation’s housing market....

Global economic events are moving so rapidly that we have no way of foreseeing the economic environment for next year. It will probably not be very good, but how bad it will be and how it will look to voters cannot yet be foretold.

More to the point, we need policy discussions more than we need political ones. This is not just about how big the deficit should be; it is about whether the international financial system will survive the next six months in the form we now know it. It is about whether the foundations of the postwar order are cracking in Europe.

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"The storyline is that global growth is decelerating," Mike Ryan, chief investment strategist at UBS Wealth Management Americas, told Bloomberg. "Financial stresses are rising and policymakers are finding few viable options to stabilize the real economy."

That leaves [Ben] Bernanke and company in a bind.

"The Fed can only do so much," Greg McBride of the financial website Bankrate.com, told NPR's Scott Horsley. "Their most effective tools are things that they have used up already. At this point, they've got a few options left, but none of them is a surefire way to either jump-start the economy or get people to borrow or get banks to lend. There's still a demand problem. And that is not something that the Fed alone can fix."

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Cutting its global forecasts sharply, the world's economic watchdog said the global economy had entered a "dangerous new phase" and urged policymakers to tread a careful line between aggressive deficit reduction and growth. Central banks should stand ready to restart the printing presses to aid the recovery, it added in its twice-yearly World Economic Outlook.

"The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks," Olivier Blanchard, the IMF's chief economist, said. "Markets have clearly become more sceptical about the ability of many countries to stabilise their public debt. Fear of the unknown is high."

Europe's leaders came under scathing criticism over the escalating debt crisis.

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This year, volatility has soared and share prices have fallen sharply, in part because few believe there is a Bernanke put, or, for that matter, a Trichet put. It is far from clear that the authorities could stem a new panic, and even less clear that many would be willing to try.

In other words, the slogan for markets as the International Monetary Fund and World Bank meet this week in Washington could well be, “You’re on your own. Don’t count on anybody to bail you out.”

The situation is thus drastically different from that of three years ago, when I.M.F.-World Bank meetings served as a forum to find joint strategies to ameliorate the financial crisis that had followed the collapse of Lehman Brothers.

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A sharply divided Federal Reserve is expected to take modest steps Wednesday to bolster stagnant growth and hiring amid European debt woes.

The efforts likely won't have a dramatic impact, analysts say. But inflation concerns may preclude stronger medicine, and in any case prior doses of shock-and-awe easing didn't result in a self-sustaining, robust recovery.

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It sounds like a good plan, but here’s the real risk: even after this restructuring, Greece ends up defaulting on those new EFSF-backed bonds. Remember, this is a solvency problem not a liquidity issue.

So the EFSF takes a loss, and maybe even its partner, the IMF. The debt is removed from bank balance sheets and put directly on the taxpayers of Europe and, via Washington’s 17% stake in IMF loans, Americans.

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You can check out the chart here.

Treasuries rose, pushing 10-year note yields below 2 percent, as the government’s payrolls report showed no jobs were added in August, stoking speculation that the Federal Reserve may consider additional stimulus measures to boost the economy.

U.S. 30-year yields fell to the lowest in since January 2009 as U.S. employment data were the weakest reading since September 2010. Minutes of the Federal Reserve’s Aug. 9 meeting released on Aug. 30 showed policy makers will debate stimulus options at their September gathering. German government debt rallied and credit defaults swaps rose, reflecting concern the European debt crisis is worsening.

“The markets were expecting some positive rate of job growth, and with that not materializing, everyone wants the safety of Treasuries,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “The nonexistent job growth has decreased fear of inflation and replaced it with increased fear of recession.”

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Central banks and official bodies have parked record sums of dollars at the US Federal Reserve for safe-keeping, indicating a clear loss of trust in commercial banks.

Data from the St Louis Fed shows that reserve funds from "official foreign accounts" have doubled since the start of the year, with a dramatic surge since the end of July when the eurozone debt crisis spread to Italy and Spain.

"This shows a pervasive loss of confidence in the European banking system," said Simon Ward from Henderson Global Investors. "Central banks are worried about the security of their deposits so they are placing the money with the Fed."

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Federal Reserve Governor Elizabeth Duke called for government efforts to promote the rental of foreclosed homes, saying a recovery in the U.S. housing market hinges on clearing the backlog of such properties.

“We need to deal with the unprecedented number of loans in or still entering the foreclosure pipeline, the disposition of properties acquired through foreclosure, and the effect of a high percentage of distressed sales on home prices,” Duke said in a speech today in Washington. “We, as a nation, currently have a housing market that is so severely out of balance that it is hampering our economic recovery.”

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For the last three years we have been told repeatedly by government officials that funneling hundreds of billions of dollars to large and teetering banks during the credit crisis was necessary to save the financial system, and beneficial to Main Street.

But this has been a hard sell to an increasingly skeptical public. As Henry M. Paulson Jr., the former Treasury secretary, told the Financial Crisis Inquiry Commission back in May 2010, “I was never able to explain to the American people in a way in which they understood it why these rescues were for them and for their benefit, not for Wall Street.”

The American people were right to question Mr. Paulson’s pitch, as it turns out. And that became clearer than ever last week when Bloomberg News published fresh and disturbing details about the crisis-era bailouts.

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Squeezed into a corner, Ben S. Bernanke tried a classic escape tactic: Create a diversion.

With financial markets hoping for something of substance in the Federal Reserve chairman's speech on the economy Friday, Bernanke instead cooked up some comfort food. The near-term outlook is a struggle, he allowed, but over the long term the U.S. has the wherewithal to return to a healthy pace of growth.

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In this year’s speech, he is likely to put particular emphasis on what needs to be done to repair the U.S. economy over the longer run, including lowering long-term deficits. The title of the speech, in fact, is “Near- and Long-Term Prospects for the U.S. Economy.”

While Bernanke has said that Congress should not cut the budget deficit too quickly, lest this austerity undermine the weak economic recovery, he has previously argued that a long-term plan to put the government’s spending in line with its revenue could help instill confidence. Indeed, Deutsche Bank chief economist Peter Hooper said in a research note that the need for longer-term adjustments in the economy could be another argument against new Fed intervention.

“Any action the Fed takes at this point may give the markets no more than a temporary lift and would not resolve the more fundamental problems that are weighing on the economy,” Hooper said.

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I have spoken to this many times in public. Those with the capacity to hire American workers―small businesses as well as large, publicly traded or private―are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy. In an environment where they are already uncertain of potential growth in demand for their goods and services and have yet to see a significant pickup in top-line revenue, there is palpable angst surrounding the cost of doing business. According to my business contacts, the opera buffa of the debt ceiling negotiations compounded this uncertainty, leaving business decisionmakers frozen in their tracks....

...put yourself in the shoes of a business operator. On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand. But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base. Your most likely reaction is to cross your arms, plant your feet and say: “Show me. I am not going to hire new workers or build a new plant until I have been shown what will come out of this agreement.” Moreover, you might now say to yourself, “I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?”

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“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”

It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.

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Bank of America would have us believe the goodwill by itself was more valuable than what the market says the entire company is now worth. Investors don’t buy that. They see a company that needs to raise fresh capital, judging by the discount to book value, in spite of the company’s claims it doesn’t need to. The more the stock price falls, the more shares Bank of America would need to issue to appease the markets, leading to fears of even more share dilution.

The same story is playing out in Europe, driven by the sovereign-debt crisis. The 32 companies in the Euro Stoxx Banks Index yesterday had a stock-market value of 313.2 billion euros ($444 billion) and a combined book value of 620.5 billion euros. France’s Credit Agricole SA (ACA), the index’s third-largest bank by assets, trades for just 34 percent of book.

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The Federal Reserve on Tuesday sharply downgraded its outlook for the American economy and took the extraordinary step of signaling that it would hold short-term interest rates at exceptionally low levels "at least through mid-2013."

The move marks the first time that the U.S. central bank has pegged a specific timetable to a pledge on its benchmark interest rate, the federal funds rate, which has been near zero since late-2008.

But the decision came with three dissenting votes from Fed committee members, reflecting concerns about the threat of runaway inflation down the road.

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Earlier today, Standard & Poor's rating agency lowered the long-term rating of the U.S. government and federal agencies from AAA to AA+. With regard to this action, the federal banking agencies are providing the following guidance to banks, savings associations, credit unions, and bank and savings and loan holding companies (collectively, banking organizations).

For risk-based capital purposes, the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change. The treatment of Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities under other federal banking agency regulations, including, for example, the Federal Reserve Board's Regulation W, will also be unaffected.

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Federal Reserve policy makers may start weighing additional steps to prop up the recovery after growth fell below 1 percent in the first half of this year and economists began cutting second-half growth forecasts.

“At a minimum, the FOMC will have a serious debate about the policy options -- what they should do, and what they expect to get from it,” said Roberto Perli, a former associate director in the Fed’s Division of Monetary Affairs, referring to the Federal Open Market Committee. “Growth in the first half was dangerously close to zero,” said Perli, director of policy research at International Strategy & Investment Group.

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Should America embark on such fiscal contraction at a time when economic growth has already slipped to stall speed, and debt deleveraging continues with a vengeance, I would like to flee to Mars for safety.

Yes, there is such a concept as an “expansionary fiscal contraction”, as in Ireland (1980s), Denmark (1990s), arguably Canada (1990s), and the UK after both 1932 and 1993, but in every successful case this was accompanied by monetary loosening. That card has already been played this time.

Should America instead opt to evade these fiscal cuts by actually defaulting on debts accumulated by self-indulgent baby boomers, I would also like to flee Mars because such an outcome might be even worse.

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The biggest share of federal spending now goes for Social Security (20.4 percent in 2010) and Medicare (13.1 percent), the two entitlement programs that big majorities of Americans want to protect from any reductions, according to a recent poll. Together these two programs for senior citizens consume more than one-third of spending, far more than national defense, which accounts for just 20.1 percent, despite the increases of recent years....

Who pays all of these taxes? The best information on that comes from the Congressional Budget Office, which has tracked the tax burden for many years. The most recent complete data cover 2007. CBO figured in that year more than half of all federal taxes was paid by the top 10 percent of income earners. They paid 55 percent of all federal taxes in 2007, CBO said.
That's a comprehensive figure, counting the income tax, payroll taxes, excise taxes and even the corporate income tax (borne by stockholders in the form of reduced dividends and appreciation). And perhaps surprisingly, the top 10 percent of earners pay a greater share of federal taxes now than they did before the Bush tax cuts, which Democrats constantly criticize as a giveaway to "the rich." The top 10 percent paid 50 percent of all federal taxes in 2001.

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The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured.

“It certainly underscores the importance of passing the debt ceiling and not putting us in default status, and making sure there’s a longer term fiscal plan to contain spending and the deficit we’ve been running up over the last few years,” said Anthony Cronin, a Treasury bond trader at Societe General SA in New York, one of the 20 primary dealers that trade with the Federal Reserve. “Maybe it’s the impetus to say we’ll need more of a concession.”

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The US dollar will lose its status as the global reserve currency over the next 25 years, according to a survey of central bank reserve managers who collectively control more than $8,000bn.

More than half the managers, who were polled by UBS, predicted that the dollar would be replaced by a portfolio of currencies within the next 25 years.

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One disturbing fact from the McKinsey report is this: The number of new businesses, a traditional source of jobs, was down 23 percent in 2010 from 2007; the level was the lowest since 1983, when America had about 75 million fewer people. Large corporations are standoffish. They have about $2 trillion of cash and securities on their balance sheets, which could be used for hiring and investing in new products. Meanwhile, the latest University of Michigan Survey of Consumers reports that “record numbers … thought that their incomes would lag inflation over the next five years.” Note: They didn’t expect high inflation so much as low income growth.

It’s not that economics achieved nothing. The emergency measures thrown at the crisis in many countries — exceptionally low interest rates, “stimulus” programs of extra spending and tax cuts — probably averted another Depression. But it’s also true that there’s now no consensus among economists as to how to strengthen the recovery.

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Federal Reserve Chairman Ben Bernanke offered a relatively glum view of the U.S. economy, acknowledging that it is growing more slowly than the Fed had expected, but predicted improvement later this year.

"The U.S. economy is recovering from both the worst financial crisis and the most severe housing bust since the Great Depression, and it faces additional headwinds ranging from the effects of the Japanese disaster to global pressures in commodity markets," Mr. Bernanke said Tuesday, seeking—as he has before—to moderate expectations that the central bank can solve the economy's lingering problems on its own. "In this context, monetary policy cannot be a panacea."

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The Obama Administration and Chairman Ben Bernanke's Federal Reserve have bet on a recovery based on reflating asset prices with easy money, federal spending and temporary stimulus programs. Part of that bet was reflating the housing bubble.

The results are what we now see: higher stock prices for Americans lucky enough to own shares, but 2% growth and mediocre job creation, a housing recession stretching well into its fourth year, and soaring commodity prices that reduce real income growth.

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From 2001-07, he argues, the dollar underwent a long, steady decline against the euro, tacitly encouraged by U.S. monetary authorities. In response to the dollar's decline, investors diverted capital into inflation hedges, notably real estate, leading to the subprime bubble. By mid-2007, the real-estate bubble had burst. In response, the Fed reduced short-term interest rates rapidly, which lowered the dollar further. The subprime crisis was severe, but with looser money, the economy appeared to stabilize in the second quarter of 2008.

Then, in summer 2008, the Fed committed what Mr. Mundell calls one of the worst mistakes in its history: In the middle of the subprime crunch—exacerbated by mark-to-market accounting rules that forced financial companies to cover short-term losses—the central bank paused in lowering the federal funds rate. In response, the dollar soared 30% against the euro in a matter of weeks. Dollar scarcity broke the economy's back, causing a serious economic contraction and crippling financial crisis.

In March 2009, the Fed woke up and enacted QE1, lowering the dollar against the euro, and signs of recovery soon appeared. But in November 2009, QE1 ended and the dollar soared against the euro once again, pushing the U.S. economy back toward recession.

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While better than expected, Friday’s employment numbers showed that the national economy still had a long way to go to fully recover. Though down from its peak of 10.1 percent in late 2009, April’s unemployment rate reflects only those Americans who are still actively looking for work.

As such, economists said the April jobs report was part of a larger picture of the economy that remained mixed. The rise in the unemployment rate reflects the survey of households, which indicated a 190,000 decline in employment in April. And recent data on initial jobless claims and other employment indicators have been weak.

“Millions of people are unemployed and many have left the labor market and given up,” Mr. Shapiro said. “Against that we are maybe creating 244,000 jobs. That is all well and good but it just shows you how much further we have to go to make a dent into what has happened in the labor market.”

“It gets the basic debate out there about the economy,” he added. “Is all we have seen the product of government stimulus, and are all the problems coming back or not?”

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It’s obviously been a good week for the Obama administration. But it comes at a dangerous time, for both the administration and the economy. The excitement over tracking down Osama bin Laden could end up making the president and his advisers less panicked over the state of the economy. And they should be a little panicked.

For the second straight year, the recovery seems to be at risk of stalling. The economy grew at an annual rate of only 1.8 percent last quarter — eerily similar to the 1.7 percent growth last spring, just when job growth started slowing down. Fully 80 percent of people say the economy is in fairly bad or very bad shape, according to a New York Times/CBS Poll last month. More people say it’s getting worse than getting better, the opposite of a few months ago.

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... if we’ve avoided rerunning the 1930s only to end up with a repeat of the 1970s, the public will judge... [Ben Bernanke] to have failed.

To this, the Fed has a stock response. It points to the all-urban consumer price index (CPI-U) and notes that it was up only 2.7 percent in March relative to the same month a year earlier. Strip out the costs of food and energy, and “core CPI”—the Fed’s preferred measure—is just 1.2 percent. When Google unveils its new index of online prices, it’s likely to tell a similar story.

To ordinary Americans, however, it’s not the online price of an iPad that matters; it’s prices of food on the shelf and gasoline at the pump. These, after all, are the costs they encounter most frequently. And with average gas prices hitting $3.88 a gallon last week, filling up is now twice as painful as when President Obama took office.

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More than half of Americans (55%) describe the U.S. economy as being in a recession or depression, even as the Federal Open Market Committee (FOMC) reports that "the economic recovery is proceeding at a moderate pace." Another 16% of Americans say the economy is "slowing down," and 27% believe it is growing.

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A group of the largest US banks and fund managers stepped up the pressure on Congress and the Obama administration to reach a deal to increase the country’s debt limit, saying that even a short default could be devastating for the financial markets and economy.

The warning over the debt limit is the strongest yet to come from Wall Street, highlighting growing nervousness among investors about the US political system’s ability to forge a consensus on fiscal policy.

The most pressing budgetary issue confronting Congress and the Obama administration is the need to raise the US debt ceiling, which stands at $14,300 billion.

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The U.S. dollar's downward slide is accelerating as low interest rates, inflation concerns and the massive federal budget deficit undermine the currency.

With no relief in sight for the dollar on any of those fronts, the downward pressure on the dollar is widely expected to continue.

The dollar fell nearly 1% against a broad basket of currencies this week, following a drop of similar size last week. The ICE U.S. Dollar Index closed at its lowest level since August 2008, before the financial crisis intensified.

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Members of the International Monetary Fund emerged from their huddle in Washington last weekend resolved to keep every option open to slow the flood of dollars pouring into their countries, including capital controls. That's a dangerous game, given the need for investment to drive economic development. But it's also increasingly typical of the world's reaction to America's mismanagement of the dollar and its eroding financial leadership.

The dollar is the world's reserve currency, and as such the Federal Reserve is the closest thing we have to a global central bank. Yet for at least a decade, and especially since late 2008, the Fed has operated as if its only concern is the U.S. domestic economy.

The Fed's relentlessly easy monetary policy combined with Congress's reckless spending have driven investors out of the United States and into Asia, South America and elsewhere in search of higher returns and more sustainable growth. The IMF estimates that between the third quarter of 2009 and second quarter of 2010, Turkey saw a 6.9% inflow in capital as a percentage of GDP, South Africa 6.6%, Thailand 5%, and so on....

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The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion as the metal reaches a record, according to the fund’s board.

The fund, whose $19.9 billion in assets ranked it behind Harvard University’s endowment as of August, according to the National Association of College and University Business Officers, last year added about $500 million in gold investments to an existing stake, said Bruce Zimmerman, the endowment’s chief executive officer. The holdings reached about $987 million yesterday, as Comex futures closed at $1,486 an ounce....

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” [Kyle] Bass said today in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”

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Federal Reserve Bank of Richmond President Jeffrey Lacker Thursday said U.S. firms are increasingly looking for an opportunity to raise prices as more expensive commodities squeeze profit margins, raising the risk of inflation.

"In the absence of further energy-price increases, most forecasters do not foresee a significant acceleration in prices this year. We should not take that outcome for granted," Lacker said at the University of Baltimore.

Earlier Thursday, the Labor Department said prices U.S. manufacturers and wholesalers pay for goods and materials rose a seasonally adjusted 0.7% in March as gasoline prices jumped and food prices fell.

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The U.S. economy continued to improve over the last month on gains in manufacturing, but firms are feeling the effects of higher energy and raw material costs, the Federal Reserve said Wednesday.

"While many districts described the improvements as only moderate, most districts stated that gains were widespread across sectors, and Kansas City described its economic gains as solid," the U.S. central bank said in its "beige book" summary.

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Top Federal Reserve officials sent a clear signal that the Fed is unlikely to follow the European Central Bank in lifting interest rates from rock-bottom levels anytime soon, playing down the idea that soaring commodity prices will lead to broader U.S. inflation.

At the Economic Club of New York on Monday, Janet Yellen, the Fed's vice chairwoman, said U.S. monetary policy "continues to be appropriate."

Recent increases in prices of oil, grain and other commodities are "unlikely to have persistent effects on consumer inflation or to derail the economic recovery" and are "not likely to warrant any substantial shift in the stance of monetary policy," she said. The key, Ms. Yellen added, is that households and businesses don't expect inflation to take off in the long run.

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The greenback...is not just America's currency. It's the world's.

But as astonishing as that is, what may be even more astonishing is this: The dollar's reign is coming to an end.

I believe that over the next 10 years, we're going to see a profound shift toward a world in which several currencies compete for dominance.

The impact of such a shift will be equally profound, with implications for, among other things, the stability of exchange rates, the stability of financial markets, the ease with which the U.S. will be able to finance budget and current-account deficits, and whether the Fed can follow a policy of benign neglect toward the dollar.

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The World Food Bank recently released a report saying food prices world-wide are now at "dangerous levels," having gone up 29 percent in the past year alone. This clearly could contribute to political instability and push millions of people into poverty.

In actuality, it already has. It is no accident that the revolution now sweeping the Arab world primarily is centered in countries that import much of their food.

Food inflation should come as no surprise to those who shop at supermarkets in the United States, where checkout-counter shock is endemic. Grocers and wholesalers say it is not their fault. Farmers say they should not be blamed, for their costs have skyrocketed, too. Well, then, who or what is responsible?

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The problems with the FCIC’s report, released at the end of January, stem from the Commission’s very inception: it was focused on the wrong topic. The FCIC investigated risky investments, lax regulation, excessive leverage. And it downplayed the more mundane, but vastly more important, collapse of the housing bubble.

The FCIC was set up to investigate a sidebar rather than the real story. Given the definition of its mission, the Commission did a reasonably good job. However, its 662-page report is a distraction from the real reasons why 25 million Americans are unemployed, underemployed, or have given up looking for work altogether. The real story doesn’t require 662 pages; it can easily be summed up in a few paragraphs.

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Put it together. QE2 is due to run out this summer. Unless you think we're creating so many jobs in a few months, that it's obvious that we're on the right track to full employment, then more QE seems in the cards.

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From here:

Major food producers like Sara Lee Corp., Kraft Foods, General Mills and ConAgra Foods are dropping discounts and upping food prices by 6% to 10% at the stores.

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Chinese President Hu Jintao, who travels to Washington this week for a state visit after a year marked by disputes and tension with the United States, said the two countries could mutually benefit by finding "common ground" on issues from fighting terrorism and nuclear proliferation to cooperating on clean energy and infrastructure development.

"There is no denying that there are some differences and sensitive issues between us," Hu said in written answers to questions from The Washington Post and The Wall Street Journal. He said "We both stand to gain from a sound China-U.S. relationship, and lose from confrontation."

To enhance what he called "practical cooperation" on a wide range of issues, Hu urged an increase in dialogues and exchanges and more "mutual trust." He said, "We should abandon the zero-sum Cold War mentality" and, in what seemed like an implicit rejection of U.S. criticisms of China's internal affairs, said the two should "respect each other's choice of development path."

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