Wall Street finished with a crash on Tuesday afternoon. Markets dropped across the board by more than 1 percent. The S&P 500 had the worst overall performance (1.61 percent, 17.89 points), followed closely by the Dow Jones (1.43 percent, 148.89 points). The NASDAQ did not drop by as much, but it still fell 1.19 percent (27.29 points).

Markets were expected to pick up during early trading Wednesday morning, but after one hour they were down yet again. Investors seem wary of making any major moves without first knowing where the Federal Reserve is headed with its latest policy statement.

According to Reuters, the Federal Reserve is expected to maintain near historic lows on its benchmark lending rates. Chairman Bernanke has said before that rates would remain as low as possible until his office was certain that the recovery was well underway. Given the weak nature of our recovery, the United States could be looking at low rates, and the pervasive risk of destabilizing inflation, for a long time.

One major worry in the United States economy today is that the Federal Reserve inactivity may be a sign of something else. The Federal Reserve may be “out of bullets”, so to speak.

According to CNNMoney.com, the Fed may have neutered its responsiveness by maintaining such low lending rates for so long. The bank used to be able to lower rates and flood the economy with cash when it was needed, but the low rates of the Bush administration greatly diminished the size of any floods the Fed can unleash. If rates were brought down from 4.0 percent to 1.0 percent the result is huge. Conversely, bringing rates down from 1.0 percent to 0.25 percent gives little result at all. The “free money” of the past decade, which is largely responsible for our financial growth, was great while it lasted but it now blocks our economy.

Despite the fact that Washington’s repeated attempts at “stimulus” – through the Fed and the Treasury – have largely failed, President Obama is interested in another round of spending. However, he is now facing stiff opposition from his G-20 counterparts.

According to Fortune, European finance ministers are likely to ask the White House to stop its spending binge at the upcoming G-20 meeting in Toronto.

There is nothing wrong with stimulus spending if it is used efficiently, but the U.S. tax cuts are the worst possible choice. They are an inefficient, though politically expedient, way of getting money into the economy, and they are not directly responsible for creating jobs. In Europe governments are cutting back on everything, and seriously considering tax increases, as a means of gaining stability. Top economic officials would like to see the U.S. do more of the same.

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