The Fed announced on Tuesday that they will reinvest money from expiring mortgage backed securities into longer term U.S. Treasurys. At present these securities would have shrunk the Fed’s balance sheet. The reinvestment into Treasurys signals that the Fed is comfortable with spending more money for a longer time.

Some Fed workers worry that they can’t drive down asset rates from already super low levels – last week the 30 year mortgage rate dropped to 4.49%, its lowest since the 1950′s. With short term rates near zero, it’s harder to combat deflation than inflation, which can be fought with raised rates.

While infrastructure repair is needed, both for our country’s aging bridges and roads and the millions of out of work construction workers, it means more spending, which conservatives are wary of. Many are just concerned about reducing long term debt, and leaving the current problem to recover slowly. But Mr. Bernanke knows best.

In the 1990′s as a professor at Princeton, he advised Japan to set an inflation rate of 3 to 4%, which would mean that the cost of borrowing would fall. This is because interest rates were at zero, and the real cost of borrowing is rates minus inflation, which would theoretically spur demand. But since deflation hasn’t yet started, it’s not quite time for this.

For now, we’re still playing the waiting game.

For years China has been the place for cheap labor. But with workers taking home a pittance – less than $200 monthly – of what Americans yield, labor strikes have been springing up like wildfire in August. Foreign multinationals are the target of these outbursts, and the Commie government is happy to displace its people’s anger abroad.While China recognizes that these mega-corporations need China more than China needs them, there is another reason why workers are unhappy.

Consumer spending is the real issue here. Since labor is a resource, it makes sense to want to preserve it, like we do oil. Moreover, exporting labor will drive up prices abroad, which is great when we’re all scared of deflation. As the Economist points out, a 20% rise in Chinese consumption would create 200,000 American jobs alone. In effect,for the world economy to recover, we need Chinese workers to be treated better, and spend more. For that to happen, a stable urban workforce is necessary, as are greater skills and investments in employees to become long term.  That means lower profits, but it also means a more prosperous China.

And don’t worry about cheap labor, India and Southeast Asia are still rife with workers.

The Financial Bill passed 60-39 and has been lauded by many as a responsible piece of legislation, and touted by others as imcomplete. Deregulation and laissez-faire economics have seen and done enough damage for the government to enact its first step towards economic socialism. I’m sure that phrasing made many of you shudder, but what else would you call it?

Republicans voted against the bill, obviously, but even Democrats are unsure as to whether the Bill will prevent future damages. The ability to invest in hedge funds, hold derivatives, and charge for debit interactions will change up front. The Financial Stability Oversight Council is a new department in charge of monitoring flashpoints in the economy, breaking up firms that pose a risk to the economy, and other regulatory procedures.

Republicans argue that this will prevent small and medium sized businesses from obtaining credit, and will force jobs overseas. To other more capitalistic countries? HA! The lack of attention to Freddie Mac and Fannie Mae is one of the larger issues that remains, as is the definition of “too big to fail,” but again, the bill is still up for review and is on the way to becoming complete, so Dems say.

The Dow was up 2.82% today at 10018.28, the first time it broke 10000 since June 28. After last week, when stocks were at their lowest point this year, this is a welcome rebound. State Street, the world’s second largest custodian bank was up 9.9% as it projected profits well above analysts’.

Worries about the European markets caused the slide of last week, but today when details were released about the stress tests for Euro banks and a date was set for July 23rd, confidence about the stress tests soared.

Despite low German manufacturing numbers, which were said to be based on a technical correction, crude oil regained stature, to $74 a barrel.  Spanish banks gained mightily as their team reached their first World Cup today.

Treasury prices fell as investors sought riskier stocks and the Euro regained some of its earlier losses, back up to $1.2638.

Unemployment is still extraordinarily high, however, and there’s much dispute as to whether a second stimulus is going to do anything. It seems that now, most of the world is willing to spend the next couple of years in the financial doldrums in order to reduce a future deficit.  Americans, and Europeans, want a long term fix, and stimulus doesn’t seem to be the answer.

It all started in China, when a revised index scared investors around the globe that one of the economic powerhouses could slow. Then everyone remembered the European debt crisis, and by the time the bell rang in New York, the Dow was below 10,000. By the end of the day it was at 9870.30, down 268.22 points and 2.7%, its largest one day decline since June 4th.

All the big tech companies were down, Microsoft, Apple, and Amazon. Investors are unsure whether recovery will continue or we’re in for a double dip. Moving away from risk and volatility, bond markets surged, and the yield on Treasurys dropped below 3% for the first time since April 2009. Deflation remains a worry for many, as summer means slowing trade.

Many economists, including those in the Obama administration, are pushing for continued stimulus in order not to fall into a depression of low consumer spending and high unemployment rates. But European countries, already strapped, prefer just the opposite, following Germany’s austerity measures. Depression looks to be closer than everyone thought, as Bill Boehner, Speaker of the House hopeful, advocates a retirement age of 70, and major cuts in Social Security, which might not be a bad thing. Hopefully, it’s just the nervous nellies.

Private equity firms have billions of dollars to spend – and it’s time they did. Unused money, called in the industry, dry powder, is bad news for hedge funds. Typically these funds last 10 years and dry powder is invested within the first 3 to 5. Either the money must be invested or returned to clients. So big boom money that was given back in 2006 and 2007 is ready to be absorbed into the market – sending equity firms scrambling for deals.

Some firms are asking clients for more time, others are rushing into potential bargains. But there is great risk involved on those cheap companies, and it is uncertain as to whether it will pay off. A lot of money is being invested in foreign – Brazilian and Indian- companies. But with all the mounting pressure, it may be hard for firms to find consistent investments.

In the banking world, a new financial bill is making its way through Congress, allowing failing or near failing banks to wait a few years in hopes that they’re paid back for loans. Small banks and businesses are having trouble giving and receiving loans, so a $30 billion stimulus should help, the House hopes.  Pretending that these banks haven’t lost money may not be the best way to financial recovery, but at this point, it may be too early to tell.

Estonia joined the E.U. yesterday, becoming the 17th member. The small Baltic state will switch from the kroon to the Euro on Jan. 1 2011.. There remains mild concern over the sinking currency, as voiced by Dmitri Medvedev. Austerity measures are being enacted all around the Euro Zone – France will up their retirement age to – gasp! – 62! and Germany, watching Greece, Spain and Portugal, hesitates to to inject money into their market to increase spending.

At home, interest rates are still low, easing fears that the economy could double dip. BP agreed to a $20 billion fund to help Gulf Coast residents, and Obama was booed for his Oval Office address. He warned that stimulus procedures must continue in order to maintain recovery. With the G-20 conference in Toronto next week, Obama also wants Chinese consumers to continue buying, by allowing the remninbi to appreciate. Their export driven economy will likely keep the remnibi where it is, or inch it ever so higher, due to its recent strength against the decreasing Euro.

All in all, people aren’t really sure where we’re going. Stimulus measures must be continued, but the recession is becoming every day more a thing of the past. As Randy Frederick, director of trading for Charles Schwab put it, “None of the problems have been resolved. They have been sort of moved off the headline page.”

The Dow Jones Industrial Average has given up all of the gains it has made this year over the course of the past couple of weeks. Why? Well, in large part due to fears of a Greek default. But that’s not all. When Germany announced last week that it was banning hedging on Euro-zone government debt, markets tumbled further.  A consequent rise in interest rates between Europe’s banks doesn’t bode well for the rest of the world.

China is worried about the astronomical prices of its real estate, and the renmnibi is still highly inflated against the Euro, which China has yet to incrementally attack. If the European situation worsens, more may have to be done sooner.

Deflation, already extant in Ireland and Spain, is causing American fears too. The United States’ G.D.P. remains low, and with cash failing to circulate, the consumer price index (CPI, as a measure of inflation) is continually sliding from its year on year percentage.

While global markets are hoping that deficits are cut, especially in Europe, that fear may lead to more unknown occurrences, which is why the VIX volatility index has reached its highest rate in over a year.

What does it all mean? For right now, things aren’t getting any better. Let’s just hope they don’t get any worse.

As the recession ends, consumer confidence is widespread. For some, however, there was never a recession. In China and India, optimism remains at an all time high. The effects of globalization that were expected early last decade, that of outsourcing these growing countries to even cheaper labor, has produced the opposite effect. Companies like Brazil’s Embraer, a jetliner corporation, buys its component parts from Western countries, and assembles its products at home.

China and India lead the pack, as college graduates, graduate degrees, and satisfaction with life has risen dramatically over the past ten years. This is in large part thanks to a new sort of innovation, one that leaves many Western countries scratching their heads about how to remain competitive. New design methods that allow for even more widespread accessibility, especially among an emergent consumer class. Simpler and cheaper is the new “new and improved” and these once third world countries are showing everyone how to do it, from cars to computers. Population booms expect more than 5 billion Asians by 2050, and a doubling of Africa’s denizens, from 1 billion in 2010 to 2, over the next 40 years.   Competing on a global scale is what these emerging market companies are after, and not only are they achieving it, but they in fact, are leading the way.

With the annual collection of world leaders for Washington’s Spring Business Conference looming next month, and recent numbers for the first quarter already in, the recession is over and recovery has officially begun. China’s economy has grown by over 11% since a year ago, Singapore’s grew an astounding 32% last quarter, the U.S. had 3% growth, but Europe, one of the world’s most important economic regions, had just 1% growth.

Part of the problem is Greece. Just days after a European bailout was arranged, doubts about Greece’s ability to recover and potentially defaulting are rampant. Because the $16 billion allocated to Greece will be paid at near market value, the country is subject to all of the jolts of the market without an interest rate ceiling. While this flaw is being currently addressed, other economies like Portugal, Italy and Spain also look weak in comparison to Northern European countries. Over the past decade, these countries saw prices and wages rise more quickly than the euro-area average and ran up huge debts. Now their recovery is stilted as the rest of the European economy is ready to grow, without the deficits that hamper these countries.

Another part of the problem is that European consumers are not spending money. Germany’s reliance on exports is a good example of how not enough purchasing power is being exercised.