Not so long ago the Fed was talking about inflationary pressures. Is this a sign that the Fed now fears deflation because of the large losses of financial and real state asset values? If not, this is really just stoking the fires of inflation.

In any case I have to agree this looks like panic. Already the December rate cut was interpreted as a panicked move and it didn't work as intended.

If the Fed keeps acting "panicked" it will lose "credibility" and then it won't matter what it does.

We have met the enemy, and he is us — Pogo

Current projects get a near euribor rate, I hear. Can Jerome confirm?

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

Preemptive easing - Paul Krugman - Op-Ed Columnist - New York Times Blog

Wow. First the markets, now the Fed's reaction.

What you probably should know is that Ben Bernanke, in his capacity as a professional economist, spent a lot of time worrying about Japan's experience in the 1990s. (So did I.) What was so disturbing about Japan was the way monetary policy became ineffective; by the later 1990s the short-term interest rate was up against the ZLB -- the "zero lower bound." This is alternatively known as the "liquidity trap." And once you're there, conventional monetary policy can do no more, because interest rates can't go below zero.

There was a lot of discussion of various unconventional monetary things you could do. But the best answer was not to get there in the first place. A 2004 paper co-authored by Bernanke argued that the ZLB could and should be avoided by "maintaining a sufficient inflation buffer and easing preemptively as necessary".

UPDATE: Bank Of America 4Q Net Down 95% On $6.3 Billion In Losses

Bank of America Corp.'s (BAC) fourth-quarter net income fell 95% as the company recorded a higher-than-expected $5.28 billion in collateralized debt obligation write-downs and said credit costs soared.

Bank of America executives in November estimated pretax CDO write-downs of at least $3 billion and said in December they would come in higher than that estimate.

The nation's largest retail bank and credit-card issuer recorded net income of $268 million, or 5 cents a share, compared with $5.26 billion, or $1.16 a share a year earlier. The company in December warned that earnings would be " disappointing," though it did expect to be profitable.

In addition to the write-downs, the company recorded $400 million losses to support certain cash funds and recorded subsequent write-downs of $400 million on securities purchased from the funds at fair value. The company said equity investment income fell $750 million "due to few opportunities for gains in the current markets."

That'll get the trading day off to a flying start.

"Ideas or the lack of them can cause disease." - Kurt Vonnegut

i would also now expect more coordinated DOS attacks as well, although that is completely out of my area of expertise.  Which Baltic country was the test attack last year?

Skennah Kowa

U.S. Markets Open With a Steep Fall - New York Times

Stocks opened sharply lower on Wall Street Tuesday morning after markets fell around the world over the last two days.

All the main indexes were down 3.5 percent or more.

A surprise and large cut in interest rates by the Federal Reserve just a week before a regularly scheduled the meeting initially boosted futures prices Tuesday morning but the rally did not last. Futures traded on Chicago Mercantile Exchange pointed to a 4 percent drop in the Standard & Poor's 500 stock index and a 422 point, or 3.5 percent, drop in the Dow Jones industrial average. Markets in Europe, however, trimmed some of their earlier losses after the Fed move.

In an apparent bid to head off a big sell-off in American markets, which were closed Monday in observance of Martin Luther King's birthday, the Fed lowered its target for the federal funds rate on overnight loans between banks to 3.5 percent, from 4.25 percent.

The bottom line is that monetary policy is almost entirely irrelevant now: the only solutions are fiscal, and structural.

I find this kind of liberal discourse quite amusing :) Cut taxes, or just abolish them like Ron Paul proposes.

For the moment this all looks like the failure of paper-currencies and not like a reprise of the 1929 Depression. While paper-currencies are kept unpegged to physical entities they are bound to dive in a resource constrained world.

Of course the Central Banks still have the option to close the paper flood gates and make the Economy decline faster than the resource flows to Society, but I doubt they'll take that action.

The LEAP2020 is forecasting the €uro going over 1.70 to the dollar still in 2008. That might well be the case, sending into recession important sectors of our economy. But then again, making it easier to access scarce resources that can help us undertake the social paradigm changes needed to enter the XXI century.

Vencit omnia veritas.

you are the media you consume.