Bernanke Feels the Squeeze as Economy Falters; Obama: Trapped by His Vacation; Perry Faces Biggest Test Yet

Dems and Wall Street Want More Cash Pumps, GOP Lines Up for Sound Money

"There's definitely a tint of optimism that [Ben Bernanke will] pull a rabbit out of his hat. He did it last summer.

-- Michael Church, president of investment firm Addison Capital, talking to the Wall Street Journal.

New home prices dropped again in July, continuing a steeper decline in values than during the Great Depression.

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Meanwhile, the Federal Reserve Bank of Richmond offered a bleak report on economic output in its region for the current month, a slide to -10 from -1 in July. Power Play is no economist, but that sounds worse.

Why then, did stocks soar on Tuesday? Not only did markets have their best day in weeks, not even the largest earthquake to hit the East Coast in decades could shake them from their heights.

The answer is that the news on Tuesday continued a concatenation of economic indicators so bad that investors now believe that Federal Reserve Chairman Ben Bernanke will have no choice but to engage in another round of what is euphemistically called “quantitative easing” in Washington and on Wall Street.

That’s when the Fed conjures up more money to invest, increasing demand for bonds, mostly issued by the government itself, and thereby keeping interest rates low. These cash dumps also lessen the value of the dollar, which artificially increases prices, creating the illusion of growth. The assets are held by the Fed and until a brighter day when either markets have returned to their former vigor, or when the bonds mature and then the government pays itself back.

All that happens, really, is that the people at the Federal Reserve declare that more money exists (they have already done this in increments of $900 billion and $600 billion) and then they put that conjured, electronically represented cash into the bond markets in New York. The originator of the bonds, Treasury Secretary Timothy Geithner, is only 10 blocks southeast of the Fed in Washington, but sluicing the new money through the marketplace to buy existing federal debt stabilizes prices (and enriches traders).

Wall Streeters love when the Fed makes up money. They love it when the Fed drove interest rates to zero and kept them there. They love it when Congress spends stimulus money or gives a big tax cut. They love anything that creates a predictable change in the trajectory of the economy, no matter how small or how short. Anything that can be forecast can be profited from.

But, there are many reasons the Fed has resisted continuing to keep pumping digital dollars.

Bond prices are already very low -- despite the ongoing federal debt debacle -- since investors are seeking safe havens from roiled stock and commodity markets. Geithener got a downgrade, but borrowing money hasn’t been cheaper since Ike was in the White House.

And interest rates are already at rock bottom and have been for years, but banks still aren’t lending. Not only are they concerned about a downturn, but there are thousands of pages of new regulations soon to rain down from the 2010 Dodd-Frank bank law. Bankers see the suffering caused in their sector by the crackdown on auto-pen foreclosure notices and aren’t eager to expand the pain. Having resisted the unprecedented assault of cash thus far, the lending problem seems unlikely to be helped by another buck bombardment.

Also, inflation, or more likely stagflation, remains a serious concern. Foreign lenders and investors are watching closely to see if the U.S. is going to debauch its currency in order to finance its unaffordable debt and simultaneously provide another stimulus for increasingly desperate American politicians. That could cause our currency to crash and really sink Uncle Sam.

Those are all reasons that Bernanke has resisted the ardent pleas from traders on Wall Street and Democrats in Washington to keep the cash coming. But the belief now is that the economy is so bad that Bernanke will feel obliged to do something – anything – to help prevent a double dip. Plus, inflation, aside from concerns about the soundness of the dollar, is less of a concern when the economy is contracting.

But there’s new political pressure gathering against the U.S. central bank. Republicans are rebelling against the cash stimulus model. While some conservatives quibbled with GOP frontrunner Rick Perry’s warning that Bernanke would be treated “ugly” in Texas if he launched round of cash pumping before the election that would help President Obama by temporarily lifting markets, there was broad agreement with his sentiments. Conservatives are seriously worried about the status of the dollar as the world reserve currency and are uniting behind a sound currency platform plank.

Plus, there is bipartisan anger over the secretive ways of the Fed, and Republicans and Democrats have renewed their push for more transparency and oversight since it was revealed last week that Bernanke’s bank had made $1.2 trillion in secret loans to banks around the globe during and immediately after the Panic of 2008. It amounted to free money and ended up overseas and in the hands of some very politically connected bankers here at home. When Congress returns there is a serious possibility that the Depression-era bank will see its wings clipped substantially.

The members of the Fed Board are gathering for a summer conclave in Jackson Hole, Wyoming this week and Bernanke is set to make a speech on the state of the economy on Friday. Everybody else has downgraded U.S. growth forecasts and facing a similar, but less severe, circumstance during the now infamous “Recovery Summer” of 2010, the Fed was prompted to make its second cash dump. Hopes are high among Democrats and investors that Bernanke will tip his hand Friday and reveal a plan for “QE 3.”

And if desperate Wall Streeters like bad news this week, markets should be way up again today. The Congressional Budget Office is set to release its forecasts on deficits and economic growth this morning. It’s expected to be very gloomy and to make it even harder for debt cutters on a super committee appointed to hack $1.5 trillion from future spending increases.

Can Obama Endure His Vacation?

"The president didn't feel the earthquake today."

-- Statement from White House spokesman Josh Earnest.

The grim determination with which the first family has taken its posh retreat to Martha’s Vineyard is being sorely tested.

Libya is in chaos after allied air strikes broke the regime of Col. Muammar Qaddafi and nobody knows where his WMDs are. The economy is swiftly swooning. The president’s job approval rating hit another new low in the Gallup tracking poll at 38 percent.

And to top it all off, nature is not cooperating either. The largest earthquake in decades hit the East Coast on Tuesday, causing a brief panic in Washington. And now a menacing hurricane is bearing down on the East Coast and potentially heading for Obama’s island enclave on Martha’s Vineyard.

Whether Obama is taking the vacation now as part of a promise he made to his family or out of a refusal to be cowed by pressure from friends and foes to abandon the ill-timed trip, the president must wish it were already over.

With his jobs plan hanging fire and the nation in a state of continuing anxiety, there are lots of reasons for the president to leave before the weekend is through. Consider how the White House has striven to show Obama’s deep engagement despite his getaway – “The president called Warren Buffett…” “The president called Nicholas Sarkozy…” “The president met with senior advisers…”

This sounds like a man working very hard to show that he’s not having any fun at all. Obama refused to abandon his golf game because of the earthquake, but he didn’t want to seem disconnected, so he stayed on the course but held a conference call.

But it’s Hurricane Irene that may provide the impetus for the president pulling up stakes from Kerry County early. The storm is on track to hit the Northeast this weekend. Of course, if it slows down, it could drench Washington on Sunday, the day Obama is set to dedicate the new statue to Martin Luther King in Washington.

If it wasn’t for bad luck…

Perry Looks to Cash in on Launch Success

“Our goal is to raise the resources to run a credible campaign.”

-- Rick Perry campaign spokesman Mark Miner the Dallas Morning News on the Texas governor’s fundraising drive.

Texas Gov. Rick Perry had a great first round, but can he stay in the fight?

Less than two weeks after entering the race, Perry is at the top of the polls, including a new survey from Democratic pollsters PPP that show him leading in Iowa. He’s locking down South Carolina support and getting lots of good reviews from influential figures in the Republican base.

But the question that looms over his campaign is whether Perry can quickly raise the big dough he will need to stay competitive with fellow frontrunner Mitt Romney.

Perry only recently got into national fundraising as the chairman of the Republican Governor’s Association. He raised almost all of the more than $100 million he rounded up for his three gubernatorial runs from Texas sources and Perry naysayers hold that even that money is in doubt because of friction between the governor and some Bush loyalists.

Former Florida Gov. Jeb Bush tried again to dispel the idea of a family feud between his clan and Perry. In an interview with FOX News colleague Neil Cavuto, who pressed the younger Bush brother on purported friction between Perry and longtime Bush adviser Karl Rove, the Florida kingmaker was adamant that there was no hostility.

“Maybe with Karl, but not with my brother, with my dad, not with me at all. I admire him. And I think Texas has got a great story and he can legitimately talk about that story as a candidate for president,” Bush said.

Romney’s campaign strategy all along has been to outlast the rest of the Republican field. The former Massachusetts governor has been tapping deep pockets in the business community and is preparing for a battle that will last well into next spring. He plans to out-spend and out-last the rest of the field.

Perry may be uniting the right of the GOP, but if he can’t match Romney’s fundraising potential Republicans looking for the strongest horse to run against President Obama will turn away.

It was always expected that Perry had the right stuff to excite the Republican electorate, but less certain is whether he will have the staying power to match the Romney organization. Call it the Reverse Pawlenty.

Chris Stirewalt joined Fox News Channel (FNC) in July of 2010 and serves as digital politics editor based in Washington, D.C.  Additionally, he authors the daily "Fox News First" political news note and hosts "Power Play," a feature video series, on FoxNews.com. Stirewalt makes frequent appearances on the network, including "The Kelly File," "Special Report with Bret Baier," and "Fox News Sunday with Chris Wallace."  He also provides expert political analysis for Fox News coverage of state, congressional and presidential elections.