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from Rolfe Winkler:

Lunchtime Links 12-31

Bankers get $4 trillion gift from Barney Frank (Reilly, Bloomberg) David pours over HR 4173, all 1,279 pages of it. He finds some interesting nuggets. One of the bigger problems I see is the proposed insurance fund that would pay for resolving systemically dangerous banks. Talk about moral hazard!

Show some balls (Saletan, Slate) A colorful take on new TSA security procedures.

New jobless claims hit 17-month low (Kaiser, Reuters) Good news for the economy but, paradoxically, bad news for stocks (and gold). If the economy improves, the Fed will have to raise rates. That will hit equity values and strengthen the dollar. But don't count on strength lasting very long. As soon as the Fed meaningfully tightens, we'll head right back into debt deflation.....which is why many think the Fed is trapped.

The land of the rising bearish wager (Zuckerman/Slater, WSJ) Betting on a "sudden stop" in Japan. (ht Walker Todd)

Can good numbers be bad news?

Barring any unexpected stumbles, and revisions aside, today will be the last time this year that Americans are told their economy is shrinking.

Indeed, the modest one percent decline in second-quarter gross domestic product could be followed by growth rates as high as three percent in the final six months of the year.

Running short on ammunition at the Fed?

Barring another serious economic stumble, it seems that the Fed is not going to offer much more credit easing than already planned. The minutes of the June meeting of the FOMC suggested a solid resistance to stepping up purchases of either mortgage backed securities or Treasury bonds.

On Treasuries, the committee argued that a small increase in Treasury purchases would do little to push down rates. Meanwhile a large increase could heighten fears that the Fed intended to monetize the government’s debt.

Gloomy employment milestones

There is normally something for both optimists and pessimists in the monthly employment report.

When the payroll figures are disappointing, the unemployment rate is frequently better than expected. This month is no exception. While payrolls plunged by nearly half a million, unemployment barely budged.

Just in case you were wondering, no exit yet

Earlier today the Fed announced that it would extend a number of programs slated to expire this year until February 1, 2010, making it clear for any of the doubters out there that the Fed is not ready to pull the plug on its patchwork of support for financial markets.  It probably would have made a bigger exclamation point if the Fed Board had made the announcement yesterday when the FOMC stood pat on its policy, but no matter.

I had argued earlier this week, that now would be a good time for the Fed to go for the low hanging fruit when it came to an exit strategy and commit to winding down, among its lending facilities, the Commercial Paper Funding Facility when it was due to expire this year. After all it would show that it was committed to the temporary nature of these programs and give those worrying about too much stimulus something to chew on.

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