Earnings season has come and gone. Earnings were up 35% to 40%, yet hiring plans are still on hold. Corporations have nearly $2 trillion on their balance sheets, but investment plans for more production are on hold, at least in our domestic market. Most CEOs during the their guidance remarks have blithely admitted that investment and hiring is moving ahead outside of our borders, but the inability to forecast anything in the States, from consumer confidence to increased spending patterns, has handcuffed their local willingness to budge from their respective no-hire policies.

Who is going to get the ball rolling and bail us out of this mess? It surely is not the Fed. By adding another few words about allowing Treasuries to rollover, they have given new life to double-dipper proponents, and although the wording yesterday was in no way a loud declaration, financial analysts have immediately interpreted their actions as a lack of confidence in our near-term prospects. Quantitative easing, if possible during this present regime of near-zero interest rates, has already proved to be ineffective, as are any other forms of monetary policy during a balance sheet type recession. Perhaps, they are concerned that bondholders may want to hold on a bit longer before rising interest rates wreak havoc on the market value of their fixed-income portfolios.

For guidance, we can only use the extended recession in Japan and the Great Depression as examples of why recent monetary policy adjustments have seemed to fall flat. In those cases, a massive asset bubble burst, sending market values plummeting in both the consumer and corporate sector. Consumers begin to save like never before and pay down installment credit. Corporations also focus on paying down their own debt, at least the ones that can, and thereby improving their credit ratings. Debt minimization trumps profit maximization, capitalism in reverse so to speak. The enormous drop in spending can only be offset by government stimulus programs, or so says conventional wisdom. However, this conventional wisdom equates to deficit spending at present and political suicide at best during this election year.

As for fiscal policy, the Obama administration was lucky to get unemployment benefits extended in this election year. The political climate has quashed any appetite for extended stimulus programs after the first few primary winners espoused conservative deficit-killing measures as the path back to the yellow brick road. Whatever happened to the campaign promises to address outsourcing? Many of us remember hearing about a new tax incentive to discourage the practice, or better still, to encourage domestic hiring. Outsourcing is too difficult to define or track, but employee growth in the U.S., when measured by data in quarterly payroll tax returns to the government, is right there in black and white. Incentives work, but only if placed correctly.

Obama has also proposed a $30 billion bank loan fund to increase lending to small and medium-sized enterprises, or SMEs, but the likelihood that Congress will review this proposal before the end of the year is slight to none. Even if passed, the bill would most likely be ineffective since government regulators would defeat the effort from the get go. SMEs are the heart of the American business engine. Even the best of them have tough times during a recession, but in a deep one, as we have now, operating deficits are to be expected. Regulators from San Diego to Boston would slam any banker that lent under these circumstances, regardless of what their bosses may be saying back in Washington, D.C. The banks are already choking on mortgage loan loss reserves, and who wants to confront a regulator about increased lending in that environment?

The plight of small and medium size businesses and their inability to access working capital loans or operating lines of credit is well documented. Anecdotal stories abound. The facts from the Census Bureau illustrate the impact. SMEs are typically defined as those companies with less than 500 employees. Over 99% of the 5,100 firms in our country fall into that category, and these firms account for 51% of total employment. With a smaller base, growth can easily be magnified. One new hire by each firm would increase overall employment by 4.4%. With a little help from the 17,000 large firms, and Voila! Our recovery is in high gear again. Were it only that simple.

Are SMEs sitting on their respective hands? According to the results of the latest Greenwich Market Pulse survey, 22% of mid-sized companies and more than 15% of small businesses have requested competitive proposals for a new bank in the past six months. These rates are double the normal average. The reasons cited are both fee related and tied to a need for new capital, although even SMEs are beginning to worry that our economic recovery is suspect.

"At the start of this year it seemed clear that a good portion of switching activity was being driven by the positive trend of companies looking for new sources of capital to fund their businesses in the face of an economic recovery," said Greenwich Associates consultant Pete Garrison. "Although the share of companies looking to switch banks has increased dramatically since then, this activity does not seem to reflect new strength, but rather, increased frustration with current providers."

The survey continues to note that there is an additional 18% of SMEs in the pipeline ready to issue RFPs for new banking relationships. Most respondents attribute this to anticipation that capacity will need to be restored when the long awaited recovery does finally take hold. Small and medium sized companies tend to move more quickly than do their larger brethren. Studies have always posited that SMEs are poised to lead the country out of recession with a mixture of innovation, a readiness to take calculated risks and a determination to succeed. Lets hope that conventional wisdom holds in these uncertain times.

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