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.

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.

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.

In March, residual signs of a market turnaround continued as unemployment held steady at 9.7%. The total number of jobs gained was 162,000, a dramatic raise since the market began shedding jobs almost two years ago.  About a third of the added jobs come from the U.S. census, which has taken many employees under its wing full time, albeit for just a couple of months.

In order to sustain growth, the job market must create at least 100,000 jobs every month. The government predicts that the unemployment rate will stay roughly in the nines all year, and that it will take until 2016 for the unemployment rate to drop back to the pre-recession rate of around 5%.

Although the unemployment rate is finally dropping, it is still 1.8% higher than it was last year at this time. Economists, however, say that this is a good sign of economic recovery. The report also showed that the average rate of pay dropped .1 both for all employees to $22.47 and for nonsupervisor employees to $18.90.

Meanwhile, President Obama is in Charlotte, N.C. today to promote his job creation plan as Democrats prepare for midterm elections this November. Congress is attempting to submit a bill that will promote job growth by offering tax breaks to small businesses that begin hiring.

Google has redirected its Chinese users to a Honk Kong search engine to avoid the censorship of mainland China in a move that underscores the Internet giant’s volatility in the Communist country. Google has accused China of blocking users access to Google.cn, the search engine’s Chinese website. Although Google has a relatively large presence in China at 36% of the search engine market with 600 employees, the country accounts for just 2% of their total revenue.

In Hong Kong, laws are looser than in mainland China, and Google has seized upon this fact to continue allowing their Chinese users to have unmediated access to the Internet. The Chinese government can deny its citizenry access to this site at any time, as they have control over all of the .cn domains.

Already China has expressed “discontent and indignation” at Google for its attempts to allow for freedom of speech and Internet access.  This bold move may relay to other companies working within China a message about how, and whether or not, to continue providing China with its own unique set of provisions. It remains to be seen whether Chinese officials will block access to the Hong Kong site.

On Sunday the vote for Health Care Reform will be decided. The bill is expected to pass, but while Democrats try to herd the remaining fence-sitters to vote ‘ay,’ Republicans will vote no, believing that it will cost more money and lessen jobs.  Needless to say, there remains a large partisan divide.

On one hand, the revised bill will bring more people health care – about 32 million, or 10% of the country’s population. It is, however, a sign of big government, as all Americans will now be required to have health care. An increased 3.8% tax on the wealthy will be imposed to make up for the 40% tax implementation in 2018 on high-cost insurance policies. More than $60 billion will be cut from Medicare. The result removes about $500 billion from the budget over the next 10 years. The final estimate by the non partistan Congressional Budget Office is a $940 billion bill.

President Obama delayed his eastern trip until June to ensure the passage of ObamaCare. But if the bill goes through the House, it still has to pass the Senate, where many believe it will be subject to numerous procedural objections. In any event, this version, though drastically cleaner and more transparent than the one from November, still has a long way to go.

In the Senate, a jobs bill passed 68-29 with 11 votes from Republicans. This new bill will increase tax breaks for small businesses by providing them with incentives to hire the long term unemployed (those who have been out of work for more than 60 days). Business tax breaks add up to about $15 billion. It also adds about $20 billion to the country’s infrastructure programs. The Transportation Department furloughed 2000 workers in early March due to a freeze.

Good news for the markets too — they are up due to a .6% drop in the producer price index for finished goods.  This has lessened fear about inflation and has kept the Fed’s  interest rates reassuringly near 0%. The 52 week intraday high was set today at 10731 and comes after a six day string of growth for the DJIA.

Over the past few months the volatility of the markets has been much lower, with indices dropping to a quarter of where they were a year ago.  Triple digit intraday jolts occurred 14 out of 19 days last month and 11 of 19 days in January. For the first four months of last year every day had 100 point swings. The steady markets, although more boring for investors, suggest that steady rises are ahead.