Taxpayers will be on the hook for another giant Wall Street bailout, and the economy won’t be mended, unless the nation’s biggest banks are broken up.

That’s not just me talking, or the Occupier movement, or that wayward executive who resigned from Goldman Sachs a few weeks ago. It’s the conclusion of the Dallas Federal Reserve, one of the most conservative of the Fed’s regional banks.

The lead essay in its just released annual report says a cartel of giant banks continues to hobble the recovery and poses an ongoing danger to the economy.

Wall Street’s increasing power remains “difficult to control because they have the lawyers and the money to resist the pressures of federal regulation.” The Dodd-Frank act that was supposed to control Wall Street “leaves TBTF [too big to fail] entrenched.”

The Dallas Fed goes on to argue that the Fed’s easy money policy can’t be much help to the U.S. economy as long as Wall Street is “still clogged with toxic assets accumulated in the boom years.”

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Nonetheless, in practice, certain financial and political leaders seem to embrace Reagan’s verbal misstep as closer to reality than Adams’ original aphorism. Witness the resistance on the part of banking institutions and certain members of the congressional leadership, despite regulations demanding that they allow facts and figures to be reported, information that could keep us from the edge of yet another economic meltdown.

The March 5 Wall Street Journal reported that as the Federal Reserve prepares to release the results of the latest round of stress tests, evaluating how banks would respond in the event of another severe financial crisis, “Bankers are pressing the Fed to limit its release of information — expected as early as next week — to what was published after the first test of big banks in 2009.”

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In Fed-speak, this is known as cutting in half the Fed’s “dual mandate” to curb inflation and unemployment, by taking out the “unemployment” part — the nation's persistently high jobless rates notwithstanding. The ranking Republican on the Joint Economic Committee, Kevin Brady, disclosed this week that he is drafting legislation that would turn the Fed’s long-standing “dual mandate” into a single mandate.

This great leap backward isn’t likely to happen as Democrats remain in control of the Senate. But what it does show is the extent to which Ron Paul’s fixation with the Fed has infected the Republican Party. Anti-Fed rhetoric, once the province of ultra-right groups like the John Birch Society, has gone mainstream with the rise of Paul, who has been surging in the polls and now ranks third behind Mitt Romney and Newt Gingrich. He is actually leading in Iowa, and a victory there would really rev up his famously loyal followers.

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Economists say it could throw the world back into the kind of crisis that reached its nadir in 2008 and 2009, destroying trillions of dollars in wealth and causing millions to lose their jobs.

In the euro zone mess, so far the U.S. has largely played the role of an outsider, reiterating the urgency of dealing with the mess. On Tuesday, for example, the U.S. Federal Reserve's second-in-command Janet Yellen urged European leaders to take "forceful action."

But now a respected Washington economic policy shop is saying that Yellen's bank itself should get involved directly. The Center for Economic Policy and Research (CEPR) is calling on America's central bank to become a lender of last resort for the heavily indebted nations, to reduce their interest rates from unsustainable levels — Italy, Europe's third largest economy is paying over 7 percent for its debt, a level at which other countries have required bailouts.

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Deciphering investor psychology is never straightforward, and particularly so recently, when there are so many potential reasons for fear and panic: our amazingly dysfunctional U.S. Congress, the ongoing European drama, and the steady drumbeat of negative economic indicators. But today's tremors can be tied to the Fed's announcements on Wednesday fairly easily.

The statement released by the Federal Open Market Committee was the most downbeat of the entire year to date. After months of telling us that the slowdown was caused by temporary factors that would ameliorate before the end of the year, the Fed was forced to acknowledge that there are "significant downside risks to the economic outlook."

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The Fed's move to rebalance its $2.87 trillion portfolio could lower Treasury yields further. Ultimately, it might reduce rates on mortgages and other consumer and business loans.

The Fed also said it will reinvest its holdings of mortgage-backed securities, which would help keep mortgage rates at super-low levels. The Fed had previously reinvested the interest and principal into Treasury purchases.

Fed policymakers announced the moves Wednesday after a two-day meeting. Three members dissented from the decision.

"The actions the Fed has taken are helpful," says Josh Feinman, global chief economist at DB Advisors. "They will help hold down long-term rates, but they're no panacea."

Stocks fell immediately after the announcement. The Dow Jones industrial average dropped 100 points. The yield on the 10-year Treasury note tumbled, and its price rose.

In its statement, the Fed noted that the economy is growing slowly, unemployment is high and housing remains in a prolonged slump.

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On Tuesday, in advance of a key meeting of the Federal Reserve Board's Open Market Committee to decide what to do about the continuing awful economy and high unemployment, top Republicans wrote a letter to Fed Chief Ben Bernanke.

They stated in no uncertain terms the Fed should take no further action to lower long-term interest rates and juice the economy. "We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy."

They didn't threaten to "treat him pretty ugly" -- as Texas Governor Rick Perry told his supporters last month he'd deal with Bernanke if he "printed more money" between now and the election.

But the threat was there. "It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate."

Translated: You try this, and we rake you over the coals publicly, and make the Fed into an even bigger scapegoat than we've already made it.

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Responding in part to the turmoil that disrupted financial markets after Standard & Poor's decision to downgrade U.S. credit, and in part to the increasing evidence that the economy was slowing faster than previously predicted, the Fed announced that it was committed to keeping interest rates at "exceptionally low levels... at least through mid-2013."

Three members of the committee dissented from the decision. In a somewhat cryptic postscript, the official press release noted that "Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser... would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period." (Emphasis mine.)

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On Friday, the latest government jobs report indicated serious weakness in the U.S. labor market. The Federal Reserve's dual mandate includes keeping inflation down and employment up. Diamond is an expert on labor market theory. With those facts in mind, one might reasonably think that the Federal Reserve would benefit from his expertise. But after sustained opposition from the GOP, led by Alabama Sen. Richard Shelby, Diamond is giving up.

And that, in a nutshell, is the state of economic policymaking in the United States. At a time when unemployment is the top economic and political priority, a Nobel Prize-winning expert in labor market theory can't get a job for the government working on the problem at the institution that could have the most influence on the problem.

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In an op-ed piece first published on The New York Times website on Sunday and in its print edition on Monday, Diamond seemed frustrated by the confirmation process, detailing how President Barack Obama had nominated and re-nominated him to fill a vacancy on the seven-member board.

The Fed often operates with vacancies on its board. The board hasn't had every seat filled since 2006.

Diamond's initial nomination fizzled when the Senate adjourned in December without acting on it. When Obama resubmitted the nomination in January to the newly convened Senate, the Republicans held six additional seats, which was expected to make the confirmation process more difficult.

Senate Republicans blocked a floor vote on Diamond's confirmation and have questioned his practical experience and research. Diamond is considered an authority on Social Security, pensions and taxation. He shared the Nobel Prize in economics that was awarded in October, with Diamond saying that his portion of the prize was for his work on unemployment and the labor market.

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In inimitable fashion, Sarah Palin led the way, managing in the space of 140 characters to suggest both that Obama had been forced into the release and that it was some kind of insidious dodge.

Media: admit it, Trump forced the issue. Now, don't let the WH distract you w/the birth crt from what Bernanke says today. Stay focused, eh?

But for the birth-certificate-as-distraction-theory to make any sense, doesn't there have to be some kind of reason why Obama might not want people paying attention to Bernanke? And that's where this loopiness completely breaks down. The Fed's position is that the economy is continuing a "moderate recovery" -- maybe growing a little slower right now than it expected a few months ago, but still significantly more healthy than six months or a year ago. The Fed believes that inflation is generally under control, and plans to end its stimulative program of securities purchases on schedule in June. According to Bernanke, the Fed expects unemployment to continue to fall and economic growth to accelerate in 2012.

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(Atlanta Fed president Jack Guynn is discussing his negative views on the housing boom:)

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How ancient those concerns seem now! Today, the primary assault aimed at the Fed is coming from Republicans, who believe that Bernanke is doing too much to combat unemployment. Some would like to simplify the Fed's responsibilities by putting an end to the dual mandate. Bloomberg:

Republican lawmakers have proposed stripping the Fed of its mandate to achieve maximum employment, so it would focus only on inflation ... [Ron] Paul expressed concern last week that the central bank won't be able to avert an acceleration of inflation. He also said he plans to "push for debating" whether the Fed should focus solely on policies that promote price stability.

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The New York Times:

In a letter to other leaders of the Group of 20 economic powers, released shortly after he arrived here, Mr. Obama tried to calm the currency tensions that have roiled global economic relations, though he did not mention by name the two most prominent sources of the tension: China's foreign-exchange interventions and the Federal Reserve's recent decision to inject $600 billion into the economy

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"When Germany, a country that knows a thing or two about the dangers of inflation, warns us to think again, maybe it's time for Chairman Bernanke to cease and desist... We don't want temporary, artificial economic growth bought at the expense of permanently higher inflation which will erode the value of our incomes and our savings."

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• China's Vice Foreign Minister Cui Tiankai: "It would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt. "
• Germany's Finance Minister Wolfgang Schaeuble called the policy "clueless" and sure to create "extra problems for the world."
• South African Finance Minister Pravin Gordhan declared that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations."
• Brazil's finance minister called Bernanke's move an "error" and Brazil's central bank president said it would have "negative consequences for other countries."

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The left is split between those who believe the Fed's numbers are too small to do any good and those who believe, with good reason, that the beneficiaries will primarily be Wall Street instead of Main Street. Conservative critics tend to fear the inflationary or bubble-inducing prospects of magical money creation.

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The Dow Jones industrial average rose 172.11, or 1.5 percent, to 11,387.24 in midday trading, a day after closing at its highest level since September 2008.

The dollar fell against other currencies as traders anticipated lower U.S. interest rates because of the Fed's massive bond-buying program announced Wednesday. Commodities prices including crude oil rose.

Retailers reported solid sales in October, sending shares of major retailing companies sharply higher. Gap Inc. rose 6.1 percent while Macy's Inc. jumped 4.1 percent.

"Those retail numbers are telling us that the holiday season is going to get off to a good start," said Stephen Jones, the chairman of Jones Villalta Funds.

The Standard and Poor's 500 index rose 16.50, or 1.4 percent, to 1,214.46, coming within two points of its highest closing level of the year. The technology-focused Nasdaq composite index rose 28.75, or 1.1 percent, to 2,569.02.

On Wednesday, the Federal Reserve announced it plans to buy $600 billion in bonds in an effort to spur consumer spending and investments in stocks. The central bank was unusually detailed in its announcement, telling investors that it planned to spend $75 billion a month on bonds until at least the middle of next year.

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The annual meeting at Jackson Hole always provides a valuable opportunity to reflect on the economic and financial developments of the preceding year, and recently we have had a great deal on which to reflect.

Hey, just this morning, the Bureau of Economic Analysis downgraded the second quarter GDP growth rate to a miserable 1.6 percent! So, even after juicing the economy every which way but loose the last two years, we're headed in completely the wrong direction. Congress won't do anything to help, so now everyone wants me to stop the bleeding.

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The author, Keith R. McCullough, is CEO of Hedgeye.com, a "research" firm specializing in "real time risk management for investors." McCullough's thesis is that the Fed's move portends a debt-to-GDP ratio that "could lead the country to the brink of collapse":

According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90 percent debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It's a point from which it's almost impossible to return.

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