1. It can keep interest rates low, hurt savers, and allow rich people to buy up all of America.
2. It can allow interest rates to rise, help savers, and hope that Americans buy high priced homes with even higher interest rates.
Maybe those choices suck.
While we are in number 1, at present, the Fed could stop speculation in futures markets, and ban easy money loans. Of course, easy money loans are not made much when interest rates are low. But of course, banning easy money lending has been half hearted at best, with the Consumer Protection Agency tied to the Fed.
As we move to option 2, we must absolutely stop speculation in the futures markets, or gas prices alone will tank the economy. As far as buying high priced homes with high interest rates, it isn't going to happen without a housing bubble.
And a housing bubble would suck too. Economic growth with better paying jobs is not going to happen thanks to worldwide deflation of wages. But the inflationary pressures we still feel are more related to speculation in futures markets than a function of dollar weakness, as the dollar has remained flat.
So, it is becoming apparent to many that without sound economic growth, the Fed has nothing but poor choices. The choices are all related to saving the banks, because they are in such bad shape that the middle class is not a big concern to the Federal Reserve.
If we keep doing choice 1, the middle class will get killed, with high prices for food, gasoline, etc. Couple that with no savings and a hope in a risky stock market that most cannot tolerate. Banks won't lend in a low interest rate environment.
If we head toward choice 2, the banks will get killed without support from the middle class to move real estate. If the middle class says "no" to real estate, the banks will suffer even if savers do better. Look for folks to seek safe yields in bonds and await a crash of the stock market. If easy money lending comes back, the banks will make a lot of money but the risk will be absorbed by the borrower, with risky and teaser mortgages coming back into play.
So, without economic growth, the banks want a bigger cut of a smaller pie. If you remember that be very careful that you don't satisfy their predatory greed.
As I posted at Business Insider to this article:
"Actually, Paul Krugman is partly right in his economic views. Without stimulus we are cooked. However, thanks to stimulus in speculation, main street is cooked. Main street is cooked no matter what. Main street is cooked in the low interest rate environment, where savers are starved, and it is cooked in the high interest environment when toxic mortgages are the only way you can afford a house!"and I posted this: