Foreclosures continue to plague the U.S. housing market, but government agencies are working to develop a plan to aid struggling homeowners, and in turn, strengthen the U.S. economy.

The U.S. Federal Reserve yesterday (Tuesday) announced a new program that will provide as much as $600 million in emergency funding to money-market funds should the ongoing global financial crisis once again cause the short-term credit markets to freeze out borrowers.

Consumer prices held steady as the credit crisis took a toll on the sluggish U.S. economy and dampened inflation. The Labor Department announced yesterday (Thursday) that the Consumer Price Index (CPI) was unchanged in September after declining 0.1% in the prior month.

Overseas markets surged early Tuesday as government-backed bank-bailout plans in the United States, Europe and Japan persuaded investors to jump back into stocks.

Shares of Ford Motor Co. (F) and General Motors Corp. (GM) posted gains yesterday (Tuesday) on speculation that consolidation in the U.S. domestic auto industry could be the struggling sector’s saving grace.Over the last three trading sessions, Ford shares are up almost 18%, while GM shares are up over 37% on reports of possible merger talks and asset sales.

Global markets had deep sell-offs yesterday (Tuesday) as short-term credit markets remained tight, with the three-month lending rate for banks hitting a yearly high.

The U.K. government yesterday (Wednesday) announced its own banking bailout package with an $87 billion (50 billion pound) recapitalization plan for the ailing British financial sector.

By relaxing the US financial system’s mark-to-market accounting standards, the government is effectively deactivating the financial “early warning system” that let investors know that a global credit crisis was brewing, says Jennifer Yousfi in Money Morning.

In a bold move to provide stability to the frozen short-term credit markets, the U.S. Federal Reserve yesterday (Tuesday) announced new measures aimed at boosting liquidity and allowing corporations to maintain daily operations. But the U.S. markets were less enthusiastic about the Fed’s new measure. Slight gains in early morning trading quickly reversed course to plunge much lower.