The Democrats are putting their foot down...and stepping right in it...

The incoming chairman of the House, Barney Frank, has made a point in saying that the new Democratic Congress will be taking tougher approach to supervising the Federal Reserve than did its Republican predecessor.

Last week, following the release of the Fed minutes from the December 12 meeting, Frank said, in a speech to the National Press Club, "There are people who think the Fed should be above democracy. We can debate the most fundamental questions in human existence, but God forbid anybody in elected office should talk about whether or not we need a 25 basis-point increase."

Frank continued to say that interest rates were a matter of "public policy" and that the Fed will be facing tougher scrutiny under the new Congress - a remark that may trouble the fedheads, as they would rather keep interest rate decisions out of the realm of politics.

The way we see it, dear reader, it's just two committees fighting for power over a decision that should be in the hands of the market. But, what do we know?

*** Wise comments from a dear reader:

"Reading the 2007 economic predictions found in the (Jan 7th) Post article today felt so good. Sound bites of any variety seem to sooth the average Joe and make him feel all is well as the American economic machine just keeps on rolling. Government wonks tout 'the inflation scare of 2006 is under control' and who could really follow their core inflation minus food and energy gobbly goo. All we know is that Big Ben Bernanke is at the controls and it is a calming thought of the maestro engineering a 'smooth landing' for the economy. No one really wants to know how the numbers are manipulated and calculated to lull us into a false sense of security. It's good, everyone says its so and I am too busy not to believe. Who has time to really check in a world where the laws of economics no longer seem to apply?

"Another sound bite from some so-called 'expert' proudly proclaims, 'the American consumer is riding on a full tank of gas.' The consumers I know and talk to - away from the 'experts' - are riding on fumes in a 'me too' real world of crushing debt load. We are partying like it is 1999 growing ever more creative in managing an ever larger bundle of debt obligations. Give me another expert sound bite to dull my senses: 'never save for tomorrow what you can spend for today. Creative financing can get you the house, car, furniture you need today and can pay for tomorrow.'

"We sit in our expensive not-paid-in-full loungers spending our time watching reality TV while the beginnings of a financial thriller may be lurking in the dark. This year may yet be another decent one for the economy as predicted, but I am beginning to smell something rotten beneath the sound bites. A great book of wisdom encourages us to be proving all things and to investigate thoroughly. This, I believe, is prudent advice even as I'm tempted to fall in love with the economic sound bites of 2007. Everyone says its so."

*** Speaking of predictions...frequent DR contributor, Dr. Marc Faber sees a "severe correction" ahead for the global assets in 2007.

"In the next few months, we could get a severe correction in all asset markets," Faber said in an interview with Bloomberg Television yesterday. "In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate."

Faber rattled off where you want to be (and where you don't want to be) positioned in the upcoming year:
 
Vietnam and Singapore are Faber's top picks in Asia "because stocks in Singapore aren't terribly expensive compared with interest rates, while Vietnam's equities have incredible potential in the long run."

He also sees potential in Japanese stocks this year, as "the Nikkei 225 Stock Average climbed 6.9 percent in 2006 and the broader Topix Index added 1.9 percent, the smallest gains among benchmarks for the world's 10 biggest markets."

However, Faber warns that "emerging markets could get kicked in the next three months, so be careful of buying Russian shares." He also expressed caution in buying shares in China, India and said that although the valuations in Thailand are inexpensive right now, wait until the political problems simmer down before becoming involved.

In 2001, Faber advised investors to buy gold, and the yellow metal has doubled since then. He told Bloomberg that in 2007, "the price of gold will continue to go up and probably very substantially. In the long run, it's very clear that central banks are basically increasing the supply of money and the supply of gold is obviously very limited."

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.