Is a Fed rate tightening up ahead any time soon? Despite concern that low, real, short-term interest rates are hurting the dollar. Don't count on it.

First, the U.S. Federal Reserve wants to encourage banks to lend -- for auto purchases, and especially for business loans -- and nothing prompts banks to lend, even in tighter capital times, like low-interest-rate or zero-interest-rate money.

The Federal Reserve Open Market Committee (FOMC) issued its statement almost exactly as expected. The language on interest rates is remaining low for an extended period of time remained largely unchanged, and the decision was unanimous.

As I have mentioned earlier, the Fed continues to avoid any potential language which could disrupt the financial markets. Any potentially controversial ideas seem to be reserved for speeches by the Chairman and other government officials.

One modest ray of light on the fiscal front for the United States: the U.S. Treasury, as expected, announced that total borrowing for the current quarter (October quarter) will be 43% lower, as a result of a reduction in money needed to help the U.S. Federal Reserve manage its balance sheet.

The Treasury said net borrowing will total $276 billion for October through December, compared to the previous estimate of $486 billion. The Treasury also projects a borrowing of $478 billion for the January-March quarter.

Against the backdrop of heightened public criticism, The U.S. Federal Reserve is trying to encourage banks to take the first step in controlling excessive pay and bonuses. Regulators have established broad guidelines for pay incentives and bonuses. However, they are quite loose and do not nail down any specifics. Regulators are trying to coax compliance before the end of the year.

Britain has taken the lead and mandated that a percentage of bankers' bonuses should be deferred for a number of years.

Why is there such a public outcry to curb excessive bankers' pay and bonuses?

Remember when the Federal Reserve and general public were blasting companies like AIG for going on retreats and holding conferences at luxury resorts? Well, on October 29, it was reported that the Fed has held its conferences at "exotic high-prices locales."

The Washington Post reported on October 28, that the San Francisco Fed hosted a conference at the "spectacular Bacara Resort and Spa" in Santa Barbara, where it paid $300 a night for the rooms -- an off-season price. Perhaps we should be praising the frugal nature of the Fed, as suites can run $2,000 during the peak season. Ben Bernanke attended this conference, which has drawn the ire of some. This conference was followed by a conference held by the Boston Fed at an Inn that charges up to $320 a night for regular rooms and nearly two grand a night for suites.

Economist and president of a research firm that bears his name, Andrew Smithers (not related to the Smithers of Mr. Burns fame) is saying our on-fire stock market is set to burn itself out. The S&P 500 Index is overvalued by 40%, he believes, and we can expect a plunge thanks to central bankers restraining themselves on the securities purchases that have pushed the markets up so far so fast. Also, banks are going to need to sell more shares to raise capital and pump up their balance sheets.

If the S&P 500 were to take a 40% dive today, it would fall to 647.76 (based on the Friday close), below the low it recorded in March.

Stocks are poised to head lower as investors continue to digest news out Tuesday about the nation's flagging housing market. While in recent months optimism had crept into builder stocks in anticipation of recovery, a report from the Commerce Department showed new-home construction flat last month.

The news sent the three major U.S. stock indexes lower in trading yesterday, and futures this morning show the Nasdaq Composite Index and the S&P 500 each lower by a half percent, along with the Dow Jones industrial average, which could be trading back under the 10,000 level.

The U.S. dollar continued to decline today, and has helped push gold prices up sharply in today's action.

The dollar has been very weak lately, and as more concern mounts of the dollar's strength more investors are rushing into the precious metal, which traded up as high as $1,069.70 today, and is currently up $1.70 an ounce to $1,059.20.

Why is the Federal Reserve doing "reverse repos?" What is a "reverse repo" and how does it work?

Looking back at the past year, the Federal Reserve has printed piles of money and pumped them into the banking system and the economy. Now there is a good deal of worry that all of this excess money sloshing around will create inflation, not to mention that our dollar will head downward on world markets, creating uncertainty among trading partners across the globe. China stepped in the currency markets yesterday and "bought" dollars to support the dollar.

The Federal Reserve, mindful of the turmoil that a weakening dollar has on world markets has tested the use of "reverse repos" to drain money from our banking system. In a reverse repo the Fed sells assets such as Treasury securities to dealers for cash with the agreement to buy them back at a slightly higher price at a later date. The effect is that bank reserves are drained from the financial system.

Consumer debt levels fell again in August for the seventh month in a row. Facing continued instability in the job market, people are paying down their debt, as a way to protect themselves. Savings are up, and borrowing is down – which could weaken the recovery. Consumer spending accounts for 70% of economic activity in the United States.

Total consumer debt outstanding dropped by $12 billion in August, according to the Federal Reserve, reflecting an annualized rate of 5.8%. Reality outpaced Wall Street's expectations, which were around $10 billion. In July, consumer debt outstanding fell $19 billion (9.1%), which was the largest in hard-dollar terms since 1943 and on a percentage basis since June 1975's 16.3%.

While consumer fear is playing a significant role, as a touchy housing market and dicey job situation leave little to lean on, the banks are also responsible for the change in direction. They aren't lending as easily, with stricter standards limiting the amount of credit available to consumers. You can't spend what you can't borrow.

The Commerce Department released GDP numbers today for the second quarter, and showed that the economy shrank less than expected for the April - June period.

According to today's report, second quarter GDP figures dropped by 0.7%. Before the report, analysts had been expecting to see that GDP actually dropped by 1.1%, providing some fresh evidence that the economy will probably start growing again during the second half of the year.

The Federal Reserve Open Market Committee (FOMC) issued its statement today making its best attempt to be a non-event. The language on interest rates and quantitative easing remained largely unchanged, and the decision was unanimous.

This decision was designed to avoid any potential landmines which could disrupt the financial markets. The FOMC wanted this statement to be a non-event and seems to have largely succeeded.

In another sign that the housing market may be emerging from its slump, applications for mortgages rose last week by a nice 12.8 percent.

The news comes from the Mortgage Bankers Association which stated that its seasonally adjusted index of mortgage applications rose to 668.5, which is the highest that the index has read since back on May 22.

Traders are selling oil off today after a government report that showed inventories rose last week.

Going into this week's inventory report from the Energy Information Administration, analysts had been expecting to see oil inventory drop by around 2.25 million barrels. What today's report actually showed though was an increase last week by 2.8 million barrels.

There may be a new rule coming from the Fed that will make banks stronger but will hurt investors. There's a good possibility that banks will have to raise their "well-capitalized" capital requirement from 7% to 8%. The current definition of "well-capitalized" is 6% but the unofficial rate that regulators like to see is 7%. That means for every asset on the books of $100, there is now $7 of capital to back it up. With the new rule, that capital cushion would go to $8. That means the FDIC would have more protection against losses ($8 of protection is better than $7). But the question is: where do banks find the extra $1?

They can come up with it several different ways, none of which help current investors. The first, and easiest way, is to simply sell assets and lower the total size of the bank. If a bank of $1 billion has capital of $70 million, it could sell enough assets to shrink to $875 million. Then the capital base stays the same at $70 million (assuming no gain or loss on the sale of the assets) but the percentage of capital is now 8% rather than 7%.