Economic Outlook: Leaning over the rail

The U.S. Federal Reserve took Wall Street by surprise Wednesday by simply doing nothing.

The Fed's two-day Open Market Committee meeting concluded with the Fed reaffirming its federal fund rate of zero to 0.25 percent, which it said would likely remain in place until at least 2014.

The central bank also said it would stay the course on its so-called Operation Twist, which calls for reinvesting proceeds from maturing short-term debt into long-term debt. This was already announced in June and no changes were announced Thursday.

In some ways, investors could feel grandly set up. European Central Bank President Mario Draghi famously said last week the ECB would do "whatever it takes," to support the eurozone. Fed Chairman Ben Bernanke had recently outlined possible steps the Fed could take. This had many people leaning over the rails.

U.S. Treasury Secretary Timothy Geithner said what he would do would not include driving the economy over the "fiscal cliff," a freshly minted phrase that refers to ending the George W. Bush-era tax cuts and slashing spending, a double-whammy on consumers.

This double-trouble scenario is direct result of Washington gridlock from the summer of 2011 -- and now, as a kind of a bastard child, neither the Republicans nor the Democrats want much to do with it.

Geithner in a recent interview called for a more moderate approach.

Sticking to his dubious conclusion that regulators can rein in the crisis with seemingly endless rules and his mantra of late that Europe is holding the U.S. economy back, Geithner said, "You have to think about what is the most sensible, responsible, effective way to help repair the damage caused by the crisis, make sure we are doing things to help strengthen long term growth, and give Americans more confidence we are going to go back to living within our means."

Essentially, that's right. The United States needs to stand strong, but not overestimate and oversell its ability to change or to hold the course even if changes are made. Geithner calls for Congress to help homeowners and others in debt refinance, another wise call. Instead of expecting banks to lower principle on loans for homes that are underwater, the government could help homeowners directly with covering the cost of refinancing their homes.

A home can be under water -- meaning it is worth less than what is owed on the loan. In that sense, the mortgage has, essentially, fallen out of synch with the times.

Refinancing is like rewinding a wind-up toy. After refinancing, the loan has further to go, but it has a little more spring it its step.

In international markets Thursday, the Nikkei 225 index in Japan gained 0.13 percent, while the Shanghai composite index in China lost 0.57 percent. The Hang Seng index in Hong Kong shed 0.66 percent, while the Sensex in India lost 0.19 percent.

The S&P/ASX 200 in Australia added 0.16 percent.

In midday trading in Europe, the FTSE 100 index in Britain gained 0.29 percent, while the DAX 30 in Germany rose 0.55 percent. The CAC 40 in France added 0.42 percent, while the Stoxx Europe 600 gained 0.38 percent.