– “The US may face its longest recession in a quarter century no matter what action Congress takes on Treasury Secretary Henry Paulson’s $700 billion plan to rescue the battered banking industry,” says Bloomberg. The US economy shrank in the third quarter, and “a further contraction is likely in the next two quarters … which would make the recession the longest since 1981-82.”

– After the biggest one-day point drop in history for the Dow US stock futures are pointing to a recovery today. “S&P 500 futures rose 25 points to 1,143.80 and Nasdaq 100 futures added 13.5 points to 1,525.50. Dow industrial futures rose 136 points,” reports MarketWatch.

– Overseas markets were also showing signs of life. The Hang Seng closed higher and the FTSE 100 was steady. The Nikkei 225, however, was down 4.1%.

– Interbank lending is tight. Overnight LIBOR rates have spiked up to 6.875% from 2.56875%.

– The CEO president, George W Bush, is due to make a statement at 7:45 EDT on the failure of his administration’s bailout bill. The statement will likely be the key mover of today’s markets. Already, there is talk of a revised plan and speculation of emergency interest-rate cuts.

– Financial website 24/7 Wall Street says the Fed should cut rates to zero.

Inflation does not look like much of a leviathan any more.

Oil has dropped from $147 to $94 in a very brief time. Agricultural commodity prices are dropping almost as fast. The money that the Fed has pushed through its emergency lending window, now well into the hundreds of billion of dollars, has done nothing beyond strengthen bank reserves. Not a trace of it has shown up in the lending markets.

The prevailing wisdom is that Congress will eventually come up with a bailout package for financial institutions and mortgage-holders. That was the prevailing wisdom yesterday and it turned out badly. Counting on a legislature where every representative is up for re-election is worse than betting on a game of Three-card Monte on a New York City street corner. It is all risk and no reward.

The largest single advantage that the Fed has in a financial crisis is that it can act alone. It operates without permission and only the most modest regulation.

Cutting rates to zero will certainly not cost the government and taxpayers $700 billion. It might well free up some of the credit which is currently frozen in place. It would certainly tranquilize some of the market’s hysteria. It would leave the impression that there is some will to power left in the institutions put in place to keep the financial world orderly.

–  Commodities are getting killed. According to the FT, “Commodities prices were on Monday heading for their biggest quarterly drop in more than 50 years on concerns that the US economic slowdown is hitting China, the world’s engine of raw materials demand.”

– Despite the proverbial shit hitting the proverbial fan yesterday on Capital Hill, or maybe because of it, the dollar is up in European trade against major currencies.

– Gold dropped in London $897.00 per troy ounce from $905.00 late Monday on dollar strength.

– Crude-oil futures are up almost 3% early after yesterday’ $10-a-barrel route. Oil traders, it seems, are betting on another version of the bailout package going through soon.