Did the Fed choose stimulus over dollar stability? The greenback fell and gold rose after the FOMC signaled today that it would keep its balance sheet steady by reinvesting the proceeds of mortgage bonds into Treasurys. This is the first Fed policy shift in about a year. It comes in response to a slower economy and disappointing job numbers, with the Fed downgrading its economic outlook in its FOMC statement.

By itself, this is a modest move. But it could be the start of something bigger. If recovery conditions continue to slow, the Fed could be more aggressive by monetizing more Treasury debt and expanding the balance sheet to print money. If it does that, the dollar will depreciate more and gold will rise more. A lot more.

But here’s the central problem. The Fed can print more money, but it can’t print jobs — or capital formation, or productivity. With a trillion dollars of excess bank reserves already in the system, there’s no shortage of money. The recovery is being held up by the tax-and-regulatory threats and anti-business attitude coming out of Washington.

Today, for example, the House passed a $26 billion spending plan to bail out Democratic blue states and government unions. That money could have been used to extend the 2003 tax cuts on upper-income earners and investors. And part of this state bailout is a tax hike on the foreign earnings of big corporations. Of course, on top of that, nobody understands how Obamacare mandates and regulations will ultimately affect the cost of doing business and the hiring of new workers.

So in terms of Fed money-pumping, you can lead a horse to water, but you can’t make it drink. You can add more cash, but that doesn’t mean businesses and entrepreneurs will use it. Fiscal policy is the obstacle right now, not a shortage of money.

Oh, by the way, did you see the USA Today report that federal workers now earn double their private-sector counterparts? Total pay and benefits come to about $123,000 for federal workers in 2009, compared with $61,000 for private-sector workers. And who’s paying for that? You are. And President Obama wants a 1.4 percent across-the-board pay hike for the federal workforce in 2011.

It’s all a matter of priorities. Who do you trust? Well, Washington trusts government. So the private sector is very slow to spend and invest.

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