Dean,,

You are right. These are trying times this dark autumn ,with the Dow up only 10% on the year and housing prices flat.

Let us bow our heads and pray.

"Heavenly father, thou givith only 10%, and we mortals understand..."

Gladstone-
Housing prices are flat (down actually) but sales are way down. That's what happens when supply and demand are out of whack.

Dean,
Actually the Fed did manage to avoid a recession in 2001 if you go by the standard definition of recession being two consecutive quarters of negative growth. Q1/-.5% Q2/+1.2% Q3/-1.4% Q4/+1.6% and then off to the races with normal growth in GDP.
You are right that it took a long time to recover the lost jobs. But how much of that problem is associated with the secular trends of globalization/outsourcing etc. and not the FED's "mistaken" monetary policy?

I couldn't agree more though that this time will be worse. The rate cuts by Ben are unlikley to have the effect that Gspan got. Notice how long rates actually rose after yesterday's cut. Mortgage rates will be going up and that only keeps hurting the housing market.

The CEO of Toll brothers says the 50 point reduction only serves to signal that we are in "deep doodoo". The uptick in long rates (I hadn't seen that) means inflationary expections are up, or at least uncertainty about inflation is up.

I guess it has been a generation since Volker stopped inflation. Those who ignore the lessons of history...

we are akready suffering inflation. forget the government numbers, look at the price of gold and oil.

The rate cut is unlikely to have any effect on most homebuyers (somehow "homeowners" seems so inappropriate under the circumstances) here in California. For those who aren't upside down, even a rate cut to 0 won't enable them to refinance their mortgages, as their incomes are too small for them to qualify for refinancing. And as prices are now slipping back to 2003 levels, by next summer most buyers won't be able to refinance because they're upside down.

Ye old "Greenspan Put"?

It was the overabundance of capital that caused the housing bubble in the first place. Ben Bernanke proved he is a pushover for finance capital whining.

I can't help but wonder how many weeks its going to take before more financial institutions, some of them very large, are forced to make public that they are not in the best shape. I also await with a bit of dread the 2 unemployment reports we will get over the next 8 weeks or so.

Unfortunately, the White House and Congress are mainly caught up in a foreign policy disaster, so they are probably a bit too busy to deal with the economic issues here at home.

Over at Angrybear, we note that the surprise cut of 0.5% was on 4/18/2001 while there was a 1/31/2001 0.5% at a scheduled FED meeting. I elaborate why I think your larger point is a real concern.

Belated apology for not knowing that the 1/31/2001 was also unscheduled. My did the FED move fast and furious on those short-term interest rates. Too bad a screwed up fiscal policy (long on long-term stimulus and short on short-term stimulus) kept long-term rates from falling as much.

For goodness sake, cutting interest rates makes buying CDs and bonds less attractive, so where are people going to put their money? That's easy, into stocks! That was the story of the Bush I administration, and the market boomed.

Remember, investors sometimes behave rationally.

The fall of the dollar was inevitable. It is the only way to get the trade deficit down to size. The real problem was allowing the dollar to rise to the point that it made such a painful adjutsment necessary. This was the Clinton-Rubin high dollar policy. It felt good in the short-term (except for manufacturing workers), but just like tax cuts that lead to big budget deficits, it could not be sustained.