By Vince Farrell, CNBC Contributor
The Chairman formally known as everybody's favorite Uncle Ben stepped before Congress and said the economic outlook was "unusually uncertain." Sorry, but it's always unusually uncertain. What's new about that? The market seemingly was waiting for him to say something magic, but the Fed is limited in it options. The Fed could stop paying interest on the roughly $1 trillion in deposits kept in their custody. Theoretically that would encourage the banks to loan more money since they no longer get paid by the Fed. But there has to be loan demand for loans to be made. Corporate America has close to $2 trillion in cash on their balance sheets and low interest rates are available in the credit markets if they want to borrow. They have no need of bank borrowings and the presence of so much instant liquidity shows they are reluctant to spend or hire. The other option open to the Fed to stimulate the economy would be to resume buying bonds in the open market. The Fed has bought $1.25 trillion of mortgage backed bonds in an effort to stimulate the housing market. Housing is still moribund and there is no reason to think that pumping more liquidity into the market would do anything. Where help is needed is at the small business level. Small business owners are finding it beyond difficult to get credit. Part of the explanation lies in the fact that many small business loans are collateralized by the personal assets of the owner(s) , often by their homes. With asset prices so low, it's hard to qualify for a loan.
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The financial regulation bill the President just signed says the rating agencies could be liable for the quality of their opinions. The rating agencies have said their opinions in some cases should not be relied on until they can figure out what the exposure could be. This has already thrown parts of the bond market, especially the asset backed market where ratings are part of the offering document, into disarray, and has forced Ford to postpone an offering. There will be more to come. Congress so often thinks the world is a static place. But actions always breed reactions. If Congress raises or institutes a tax, they are almost always wrong on what the collection will be. People react. They can't seem to get that, or they don't want to. There's good news from Europe with the release of the Euro zone PMI. It looks like the recovery in Europe still has some life. The European bank stress tests will be released on schedule, which would be mid afternoon Friday, New York time. That could make for some fun, but all rumors are pointing to better news than not.