And a higher interest rate means a shorter expansion. Why? Because it limits the sustainable burden of debt. A formula holds that the maximum debt an entity -- a household, firm or country -- can support is given by the maximum debt service it can pay, divided by the rate of interest. Double the rate of interest, and the sustainable debt burden drops in half. And household debt is already more than 1.65 times income, at or near a record high.

Now the Fed, bent on slowing the growth rate, has let the oil price substitute for higher rates to some degree. So for the moment, OPEC and the oil companies benefit, rather than banks and bondholders (although, as Bill Bradley pointed out in his last debate, there is a side benefit for the banks in the form of more reliable payments on the Russian debt). But how long will this go on? The consensus may be right: no October surprise. In November? A rate hike won't surprise anyone at all.

So, let's take these elements together. A decline in durable-goods spending as consumers divert to nondurables (gas, heating oil and food.) Check. Declining leading indicators three months in a row. Check. A slowdown in exports as Europe responds to yet another dose of arsenic from the European Central Bank. Coming, coming. And a slump -- maybe -- in the real activity of the tech sector as the money runs out.

Got any upside news? I'm prepared to believe that expansion need not end. I said it at the White House in April: We could go on for four or eight more years. But that was in principle. It was a contingent prediction. And right now, I don't see the contingencies being met.

There are things that can be done -- and some may be done. The simplest way to help the household sector pay its debts is to raise wages -- and that would be worth a few modest business tax cuts into the bargain. The Democrats should close the gap with Republican House Speaker Dennis Hastert on his proposed deal and get the minimum wage up, now. There isn't much else anyone can do this year, but that step would provide a little bit of expansion insurance.

Down the road, though, the old dilemma will persist. For a moderate expansion policy to continue, you need a moderately expansionary Fed. But the guys over there have a formula for raising rates. A one-way street. What is their formula for bringing the rates down? If we have to wait for the crisis for that, it will come.

The Fed's problem stems from many sources -- conservative bias, banker influence, bad appointments (and empty seats), the reverential press it gets no matter what it is doing. But these many wellsprings of difficulty lead together to something else. Which is a lack of clear thinking. Taken together, as a collective entity, the people making monetary policy do not know what they are doing.

Send letters to the editor to letters@realmoney.com.
Read our conflicts and disclosure policy.
Order reprints of RealMoney.com articles.	Top
Research Now on DLJdirect KOOP Visit the DLJdirect Research Center

RELATED STORIES
	James K. Galbraith The Eisner Curse 7/31/00 6:02 PM ET Robert Eisner has proven full employment doesn't lead to inflation. So why isn't Greenspan listening? James K. Galbraith 9.5 Theses for the Padinha's Door 5/26/00 3:04 PM ET Responses to Padinha and clarifications for opposing a passive economic policy. James K. Galbraith 9.5 Theses for the Brookings Door 5/22/00 5:41 PM ET Fed supporters stumble over themselves defending interest-rate increases, but where are their facts?