The Federal Reserve released on Thursday the latest details of its burgeoning balance sheet. In short, the assets on the Fed's books now amount to $2.2 trillion. That's more than double where it was a little over a year ago (when it stood at a mere $900 billion) — before the central bank bought tons of Treasury debt and mortgage-backed securities from the nation's banks in the midst of last year's credit crisis, putting government cash in the hands of those banks.

Now, when the Fed's balance sheet is big and banks have all that extra money to lend, the usual impact is that the increased number of dollars in the economy are competing for the same amount of merchandise. Prices go up; in other words, we have inflation.

You may have noticed, however, that it's not working that way. For the most part, in fact, prices are actually heading down. How can this be? More

Catastrophes or triumphs can define generations. If you're part of "The Greatest Generation," a moniker coined by Tom Brokaw, the Great Depression and World War II molded your early life. And those first 30 years of deprivation and struggle probably influence your decisions now.

Today's Millennials (roughly, Americans born after 1980) haven't had a world war to contend with. But as we speak, their worldviews are being shaped by the most severe recession since the 1930s. Where could that lead?
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This is sure to make financial advisers cringe, or at least send me a few angry emails. German researchers have found that on the whole, investors who use a financial adviser tend to underperform do-it-yourselfers.

Professors from Goethe University Frankfurt gathered data from a large German brokerage firm that allowed its clients to either run their portfolios themselves or use an independent financial adviser. On the whole, the adviser-led clients did better. But the researchers found that clients with advisers tended to be older and wealthier than average. Once the professors controlled for age and wealth, they found that the clients with advisers did worse.
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Mortgage rates are below 5% again. But they might not stay that way for long — even though the Federal Reserve reaffirmed its ridiculously low, 0% to 0.25% target for the federal funds rate.

Yes, it's great for borrowers that the Fed kept its target rate so low. But the text you should really care about is this little tidbit from the Federal Open Market Committee's policy statement:

"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010."

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Employment figures are poor all around, but if there's any class of workers that's held up relatively well, it's the college educated. Unemployment stands at only 4.7% for those with college degrees, versus 9.7% for those holding just a high school diploma, according to the latest figures from the Labor Department.

As much as a college diploma may assist today's youth with their future employment, paying for that education is giving their parents a severe headache. New surveys released by Fidelity Investments, the College Savings Foundation, and Sallie Mae have found that parents understand they're not saving enough, are worried about it, and are even planning to delay their own retirement to pay their kids' tuition.

Saving for college nowadays has been like trying to climb a sand dune: While 63% of parents have started saving for college (versus 60% last year), 43% say that they'll have to delay retirement to pay for it, up from 35% last year, according to Fidelity.
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In the Great Health Care Debate, much has been ballyhooed about the United States' low life expectancy when compared to other first-world countries. Our life expectancy at age 50 ranks 29th in the world — 3.3 years behind Japan (the leader) and also behind Canada, France, Iceland and Spain, among others. In contrast, the U.S. spends 16% of its GDP on health care — more than any other country.

Of course, the big question: Is the poor ranking because our health care system is broken or because of some other factor, such as irresponsible behavior outside the system (smoking) or genetic predispositions?

An as-yet unpublished study by a couple of researchers at the University of Pennsylvania's Population Studies Center concludes that the current system actually does a very good job at discovering and treating fatal diseases when compared to other countries. The authors looked at U.S. practices in finding and treating prostate cancer and breast cancer and found that the U.S. screens more extensively and treats more aggressively than European countries. (Some lively debates on the study's merits have taken place on the blog of University of Chicago professor Gary Becker and judge/lecturer Richard Posner and Tyler Cowen's blog.)

The study points out some fascinating comparisons between the performance of the U.S. health care system and those of other developed nations when it comes to treating serious medical conditions. Since the mid-1990s, age-standardized death rates for prostate cancer have fallen well below those of other countries; age-standardized death rates for breast cancer, while declining rapidly in the 1990s, merely caught up to the lower death rates in other countries.

So what's behind the lower life expectancy for 50-year-olds in the US? While the researchers don't draw any solid conclusions, they point to a history of heavy smoking and high obesity rates as factors. They also make clear that they are studying what happens after a disease has developed. "It is possible," they write, "that the US health care system performs poorly in preventing disease in the first place."

Samuel Preston and Jessica Ho, the study's authors, say that there might still be inefficiencies or unfairness in the system, and they acknowledge that they aren't measuring the overall well-being of cancer survivors. "The question that we have posed is much simpler," they write, "Does a poor performance by the US health care system account for the low international ranking of longevity in the US? Our answer is, 'no'."

If you're an investor, mispriced assets should make you happy. When stocks are too low, it's exciting (Buy!). When stocks are too high, it's exciting (Sell! or Sell short!). But when an asset is priced just right, you're left twiddling your thumbs or, worse, trying to find reasons to buy or sell anyway.

On Thursday, the S&P 500 marched tantalizingly close to 1,000 for the first time since November. But to many investors, all the recent good news has made the investing climate decidedly boring.

In a recent commentary (the S&P was at 950), GMO's Jeremy Grantham wrote that stocks and other assets "have all — or almost all — converged for a few unusual moments at fair value…It's difficult to be inspired." When I spoke yesterday with Mark Freeman, a portfolio manager at Westwood Management, he struggled to point to asset classes that investors could turn to for easy profits. "A lot of the market's mispricing has been taken out in the rally," he lamented.

Admittedly, some investors still feel strongly that the market's not going to hang around 1,000 for long. PIMCO's Bill Gross wrote today that the U.S. economy risks a permanently higher employment rate which would dampen stock prices. At the other end of the spectrum, Legg Mason's Bill Miller says, "I think bargains abound in the U.S. stock market." In March, keep in mind that nearly all of these guys agreed that the stock market looked attractive. If nothing else, we've lost that consensus.

At 1,000, the market's price/earnings ratio based on 10-year normalized earnings (which smooths out earnings bubbles and busts) stood at 17 — nowhere near its highs in 2006, but already above its historic average of about 16. Historically, when you've bought stocks at this level, the annualized return over the next 10 years has been about 6%. That's not bad, but it's not particularly exciting either.

So what can you do? For one, if you wisely decided to boost your equity stake a few months ago, as we recommended in February, now's a good time to go back to your standard allocation. If you don't know what that should be, use our Asset Allocation wizard. Don't go too far and make a bet that the stock market's going to drop to new lows. With the market floating at a price that's about fair, about the only thing that we can be sure of is…well…nothing.

If you're employed, you're probably happy just to be hanging onto a job nowadays. Employers, striving to cut costs, took advantage of that this year, giving workers a median raise that was the smallest they'd seen in 29 years, according to separate surveys by Hay Group and Watson Wyatt.

According to the surveys, the median raise was between 2% and 3%, On the margins, Watson Wyatt estimates that top performers received an average raise of 4% while worse performing employees got 0.2% increases.

Not that this will provide much solace, but given that the Consumer Price Index has actually fallen in the last 12 months, the numbers might not be quite as bad as it would seem. The 12-month, 1.4% decline in the CPI (including food and energy), actually makes that raise more in the range of 3% to 4%. It's hard to imagine, though, that companies will jumpstart raises once inflation comes back.

Hanging onto your job might seem like priority #1 nowadays, but you shouldn't completely dismiss the possibility of getting higher compensation. If your job adds directly to a company's bottom line, you're more valuable than ever. Take a look at these tips on asking for a raise from Fortune.

I'll add that a higher paycheck might not be the only thing you can squeeze out of your employer. Try asking for additional vacation days, a nicer office, or anything else that doesn't increase the closely watched payroll. And if your boss gives a firm no, ask what you can do to turn that answer around. Your boss's hands might simply be tied by a frozen payroll. But once it thaws, he or she will know that you're likely to come back and ask again.

On Thursday morning, Warren Buffett said that a second stimulus package to help the economy might be called for. I'm not going to go into all the pros and cons of a second stimulus (you can read all about that here). But the metaphor that he used to break down the idea on Good Morning America was a little…how should we say it…odd. Buffett said, "Our first stimulus bill, it seemed to me, was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in as everybody was putting it into their own constituencies. It doesn’t have quite the wallop." (Credit to The Wall Street Journal's MarketBeat blog for picking this up.)

Viva Buffett!

In addition to Buffett's Viagra analogy, President Obama has fumbled over the definition of price/earnings ratios (fast-forward to about 1:50 into this clip):

And Treasury Secretary Geithner dumbed down his response to questions about the safety of the U.S. dollar and Treasury investments so much, that his audience of Chinese students broke out laughing:

I don't envy these guys. Trying to boil down an extremely complicated situation into a TV news bite is impossible. But I wonder what the Cialis folks think about Viagra getting all the attention?

The safety of municipal bonds is often taken for granted. After all, the theory goes, if a state or city runs short on cash, it can always tax the heck out of its constituents to make up the shortfall. Corporations, on the other hand, don't have that kind of fallback.

But California's recent budget troubles have thrown the default possibility back into the limelight. And that might have you wondering if you should bail out before yet another theoretically safe investment proves to be not so secure after all.

If you haven't been paying attention, California seems to keep getting closer and closer to default, and its government can't decide how to clean up the mess. Fitch Ratings recently downgraded the state's bonds to the worst in the country (which happens to be A-, a rating many corporations would kill for). While the spokesman for California's Treasury department says a default "won't happen," could you ever imagine a Treasury spokesman saying default was "kind of a possibility"?

"I'll be bankrupt"?

Let's start off this discussion with what should be your central question: "What do I have to lose?"

In the case of muni bonds, the answer is "Not much." For one, single-A rated municipal bonds have a historical default rate of 0.0084%. That is, only about 1 in 12,000 defaults over a 10-year period.

But let's say you hit that unlucky jackpot. Your state says, "To heck with our creditors. We don't care if we won't be able to borrow money again for years," and refuses to pay. Then what do you have to lose? The answer still is, "Not much." In fact, according to the Wall Street Journal, in the Great Depression, while more than 15% of muni bonds defaulted, the estimated loss rate for investors was 0.5%. When Orange County, Calif. defaulted in 1994, investors actually got all of their money back.

And here's what you have to gain: Right now, 5-year muni bonds are yielding 2.14%, which is the same as 2.97% if your income is taxed at 28%. That's compared to a 2.44% yield on 5-year Treasury bonds.

Let's say you're weighing the purchase of a 5-year muni bond in its typical, $5,000 denomination against the purchase of a risk-free Treasury bond. Are you willing to risk a 1 in 12,000 possibility that you lose $25 (0.5% of $5,000) for the 11,999 in 12,000 chances of making an extra $125 over 5 years?

For me, the answer is yes. But if the 0.0084% chance of a $25 loss from a default frightens you, buy a municipal bond mutual fund that can mitigate your risk even more, such as the Fidelity Intermediate Municipal Income fund (FLTMX). Mutual funds will have other risks attached. If interest rates rise, fund prices can fall, causing you a larger loss. But in exchange, you'll lose little money even if one of the fund's bonds is completely wiped out.

Now, you could argue that there are even greater opportunities in stocks and corporate bonds, since virtually risk-free assets like Treasuries and municipal bonds aren't offering much income right now. That aside, muni bonds still look like a better bet next to those issued by the U.S.A.

Treasury yields have been on a tear lately. Unfortunately for people with Treasury bonds already in their portfolio, that means that the prices of their holdings have dropped like a rock. If investors continue to gain confidence in the stock market, you can expect that trend to continue. You might have used Treasury bonds as a bomb shelter during the market panic. But now, your savior in 2008 could be turning against you.

If the Treasury market continues to weaken, a few notable investors might be saying, "I told you so." Warren Buffett predicted a Treasury collapse in his annual letter to shareholders several months ago. "When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s," he wrote. "But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary."

What can you do about it? First off, if you panicked and put your money in Treasury bonds earlier this year, pare your bond holdings back to a percentage that's right for your age. (If you don't know what it should be, see Money's asset allocation tool.) If you're still too nervous to take risks on stocks, you can move the money to a short-term bond fund, such as the Vanguard Short-Term Bond index (VBISX), which is one of Money's picks. A short-term bond fund might still have heavy investments in Treasuries (as the Vanguard fund does), but since the bonds' maturity dates arrive soon, the funds' share prices won't drop as much as funds invested in long-term Treasury bonds.

Even if you stayed the course last year and didn't binge on Treasury bonds, many of the mutual funds that you rely on for diversification could have. The fund doesn't have to have "Treasury" in its name to be vulnerable. A fund that simply tracks a bond index, such as the Vanguard Total Bond Market index (VBMFX), will have a full 25% of its portfolio invested in Treasury bonds.

To see how much of your portfolio is exposed to Treasury bonds, use a website such as Morningstar.com that will break down how a fund is invested. Here's an example using the Vanguard Total Bond Market Index fund referenced above. Under the "Sector Weightings" heading is what percentage of a fund's assets are in U.S. Treasuries. You probably don't want to cut Treasuries out altogether, but don't have more of your bond portfolio in Treasuries than you'd have if you invested in a bond index fund. Right now, that sets the ceiling for Treasuries at about 25% of your bond portfolio.

Treasury bonds' pullback might prove to be temporary, but if Buffett's right, you'll be glad you limited the damage.