A major piece from IBD:
Has Fed Done Its Job?
1The Federal Reserve has unleashed a massive, unprecedented monetary easing to rev up an economy that's growing far too slowly to create jobs.
The Fed's move to buy $600 billion more in Treasuries to pump cash into the economy seemed to buoy stocks late in 2010, fueling takeovers and firming consumer spending. The president's 11th-hour deal with Congress to extend tax cuts reinforced hopes that Washington had paved the way for the economy to gain real momentum.
But only big numbers — sustained GDP growth well over 3% — will signal success. Growth likely topped 3% in Q4, better than in the prior two quarters. But that is probably not enough to make much of a dent in unemployment, now at 9.8%.
Even if the Fed's asset buys do their trick, many Americans will feel the pain of the last recession. State and local governments will probably shed staff. Most hiring could come in services, not in manufacturing and construction where job losses were concentrated.
Housing demand remains weak, now that the prop of the homebuyer tax credit has expired. Stronger hiring will help, but the glut of foreclosed homes and rising mortgage rates will weigh against a recovery.
And exports? Seemingly a key to growth for every nation, they face a big question: demand? With Europe facing austerity-led stagnation to contain a debt crisis, and Asian nations trying to keep their hot economies from boiling over, global growth is expected to slow.
For the Fed, the trillions of dollars of asset purchases and other liquidity steps risk creating a new round of asset bubbles at home and abroad.
China, India and other Asian nations are raising interest rates and taking other steps to curb accelerating inflation. Barely on the radar in the U.S., inflation could take off here as the economy picks up.
Fed Chairman Ben Bernanke insists that policymakers have lots of time to withdraw liquidity before inflation becomes an issue. But they will always face pressure to keep the spigots open. Financial markets have grown more dependent on the Greenspan — now Bernanke — put as investors count on the Fed to step in to support equities.
High joblessness soured voters on Democrats in 2010. If job conditions don't improve by the end of 2011, President Obama's re-election prospects will be in serious jeopardy.
The Coming Budget War
2 On March 4, the federal government runs out of money. That is to say, its current funding expires on that date because Congress and the White House could not finish a proper budget in 2010. Instead they resorted to a stopgap continuing resolution to keep the government from shutting down.
That will give the Republican House majority a challenge: a two-month window to make good on promises to Tea Party groups to rein in federal spending. GOP lawmakers indicate they intend to try.
Republicans feel emboldened after stopping the $1.2 trillion omnibus spending bill that Democrats tried to push through at the end of Congress' lame-duck session.
Insiders say the leaders will try to roll back spending to levels maintained by the previous administration. Since George W. Bush presided over a steady expansion of federal spending, outlays would still be historically high.
The deficit in 2008 was just below $500 billion. It was $1.29 trillion in fiscal 2010. Without stimulus packages or bailouts in 2011, the GOP's modest goal should be attainable....MUCH MORE