The Fed’s decision was unanimous. Cited was the fact that the pace of growth has slowed “markedly” and concern that financial market strains could put the economy at greater risk. “The intensification of financial market turmoil is likely to exert additional restrain on spending, partly by further reducing the ability of households and businesses to obtain credit,” the statement said.

In addition, “In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability,” meaning that inflation is no longer even on the radar screen.

The Committee also said it “will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.” That leaves open the tantalizing possibility of yet another cut in the future.

How low can they go? Lower, thinks Ian Shepherdson, chief U.S. economist at High Frequency Economics, who said the “downbeat” statement from the Fed caused him to pencil in another half-point cut at the Fed’s December 16 meet.

Source: Dollar sinks against euro -  Fed rate cut fails to support buck

“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” the Fed said in a statement. “Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports.

“Moreover,” the statement added, “the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

The Fed also lowered its discount rate – the rate at which it lends directly to banks and Wall Street firms – by a half-percentage point to 1.25%.

A wave of failures among banks and financial institutions have stymied lending and roiled global credit markets. The world economy faces a significant uphill battle as a result.

The U.S. economy expanded by 2.8% in the second quarter, but that expansion was largely the product of government stimulus checks and a weak dollar. The federal government returned roughly $168 billion back to American taxpayers in the form of rebate checks earlier this year. The tax rebates, which were mailed through May, kept U.S. consumers afloat, while a weak dollar accelerated a torrent of exports out of the country.

Since then, consumer spending has been undermined by rising unemployment and the dollar has strengthened substantially.  The advance estimate for third quarter gross domestic product (GDP) is to be released today (Thursday), and most analysts anticipate the U.S. economy shrunk during the three months ended Sept. 30.

“The growing reality is that this is not just a slowdown, but a true recession,” Joel Naroff, president and chief economist of Naroff Economic Advisors said in an interview with Money Morning.

“U.S. GDP contracted significantly in the third quarter,” said Naroff, who believes the economy may have contracted by 2.5% to 3.0% in the quarter. “Such a sharp slowdown is not expected.”

Citigroup Inc. (C) analysts Geoffrey Dennis and Jason Press said last week that they now expect an entire year of contraction before the economy gets back on track in the second half of 2009.

“We are now expecting one of the sharpest recessions in the post-war period,” Dennis and Press wrote in a report to clients on Oct. 21.

The Fed statement said the rate cut “should help over time to improve credit conditions and promote a return to moderate economic growth,” but noted “downside risks to growth remain.”

This is the ninth time that the central bank has lowered rates since September 2007. The Fed has also loaned hundreds of billions of dollars to banks through a new lending program and earlier this week began loaning money directly to major businesses by purchasing commercial paper.

The Fed yesterday lowered the interest rates it will charge to buy unsecured commercial paper to 1.84%, down from 1.89% on Tuesday. It lowered the interest rate on asset-backed commercial paper to 3.84% yesterday, down from 3.89% the day prior.

The central bank created its program to buy 90-day commercial paper directly from issuers on Oct. 7, meaning it’s now three weeks old.

The Fed’s new loan programs have expanded assets on its balance sheet by 104% during the past year to $1.804 trillion, or 12.6% of GDP, Bloomberg reported.
Rate Reductions Around the World

While the Federal Reserve struggles to keep the U.S. economy from sinking into a second Great Depression, central banks in Europe and Asia are also on the defensive and could soon join the Fed in slashing rates – if they haven’t already.

The British Office for National Statistics last week said that, after a flat second quarter, the U.K. economy contracted 0.5% in the three months ended Sept. 30. It’s likely that Germany, France and Italy have already entered into a recession, as their second-quarter GDP fell 0.5%, 0.3% and 0.3%, respectively.

The International Monetary Fund (IMF) said last week that the economy of the 15-country Eurozone would grind to a virtual standstill in 2009.

The European Central Bank (ECB), which raised rates as recently as July, backtracked and cut its benchmark rate by half a point on Oct. 8, dropping it down to 3.75%. ECB President Jean-Claude Trichet said Monday that the central bank’s Governing Council could take additional steps at its next meeting, currently scheduled for Nov. 6.

“I consider it possible that the Governing Council would decrease interest rates once again at its next meeting,” ECB President Jean-Claude Trichet said yesterday. “Taking into account the recent substantial decline in commodity prices together with a substantial weakening in demand which has emerged lately, upside risks to price stability have diminished.”

Nick Parsons, head of markets strategy at nabCapital (OTC: NABZY) in London, told The Guardian that the Bank of England (BOE) could also follow the Fed’s move with a one-point cut of its own. That would leave the BOE’s rate at 4.5%

China, on the other hand, wasted no time in following the lead of the U.S. Fed. The People’s Bank of China cut its interest rates yesterday, reducing its key one-year lending rate from 6.93% down to 6.66%.  The rate cut was the central bank’s third reduction in two months.

China’s economy registered a solid GDP expansion of 9% in the third quarter – a noticeable step down from the 11.9% pace set in 2007.  Beijing is clearly worried about the effects a global recession would have on its economy and wants to ensure growth does not slow any further.

Of course, lowering rates will also help keep the Chinese currency, the yuan, from appreciating against the dollar and the euro as central banks in the West pull out all the stops in dealing with the credit crisis.

“This cut was driven by the slowdown in the third quarter and the likelihood that the U.S. and other central banks will cut rates,” Xing Ziqiang, an economist at China International Capital Corp. in Beijing, told Bloomberg.

GDP growth in China has slowed for the past five quarters but so long as the nation keeps inflation in check it should be able to maintain a “reasonable” economic expansion of at least 8% next year, said Liu Erh-fei, managing director and chairman for China at Merrill Lynch & Co. Inc. (MER).

Whether Chinese banks were “wise, lucky, or better regulated,” they avoided exposure to the risky subprime mortgages and derivative products that caused the current financial firestorm,” said Liu. “There is no systemic risk in China’s banks that could spill over into a full blown financial crisis.”

China has more than enough economic weapons at its disposal to ensure strong growth going forward, including a world-leading $1.9 trillion in foreign currency reserves. China also has a budget surplus of 2% of GDP, according to Stephen Green, of Standard Chartered PLC. And public sector debt is just 16% of GDP.

Earlier this year, Beijing shifted the focus of its policy to growth rather than inflation – a choice analysts say is now paying dividends.

Inflation in China, and worldwide, is beginning to ease alongside commodities prices. Inflation in China receded to 4.9% in the year to August, from 8.7% in February. And Goldman Sachs Group Inc. (GS) forecasts that it will fall as low as 1.5% in 2009.

Source: Federal Reserve, Bank of China Cut Interest Rates as Financial Crisis Deepens

Agora Financial’s 5-Minute Forecast reports that “in terms of major stock indexes around the world… there are few places to hide. The Euro Stoxx 50, a gauge of the big indexes in the eurozone, is down 24% this year. Germany’s DAX has fallen 20%. The CAC in France is down 22%. Britain’s FTSE is doing the ‘best,’ down 15% YTD.”In case you were wondering, the MSCI Asia Pacific Index is down 13% since the beginning of the year, the Shanghai Composite is down around 50% this year, Indian markets have fallen about 40%, Japan’s Nikkei 225 is down 12% year-to-date, Australia is down about 16%, Germany is down 20%, India down 32% and China is down 48% YTD. To name a few.

And, closer to home, the S&P 500 is down about 15% year-to-date, and the Dow is off about 14%, which when coupled with the ugly fact that they dollar is down about 7%, means that foreigners are getting whacked harder for investing in America than Americans! And I thought Americans were stupid! Hahahaha!

The Bank for International Settlements figures, “The current market turmoil in the world’s main financial centers is without precedent in the postwar period. Given the possibility of such a worsening economic and financial environment, it would not be surprising if asset valuations also came under further pressure,” made worse by an “uncomfortably long period of high inflation, along with slower growth.”

This is pretty gloomy news, which may explain why the latest survey of consumer sentiment from Reuters/University of Michigan fell to 56.4 in June, which shows that Americans are the gloomiest since 1980. And for good reason, too, as inflation in prices is going to keep getting higher and higher, because inflation in prices always follows inflation in the money supply, and money just keeps getting created by the idiot central banks of the world by the literal ton every day, as we learn from Ty Andros of TedBits newsletter, who gives us the Ugly, ugly News (UUN) that “The AVERAGE amount of M3 central bank money and credit creation is simply astonishing. It is clocking in at an average annual rate of 23%. Yes, that’s right, 23%.” Doug Casey of the International Speculator newsletter is a little more conservative, and says, “All over the world, but especially in the U.S., currencies are being inflated radically; M3 is rising at about 18% per year.”

To show the horror of that, Mr. Andros notes that a 23% rise in the money supplies, “Using the rule of 72…means those money supplies in one form or another are doubling on average every 3.13 years.” I involuntarily pee in my pants! Doubling the money supply in three years! This is insane! We are freaking doomed!

In case you were interested in knowing if there were any countries that are not a bunch of dirtbag, fiat-currency, inflationist morons, the answer is, unfortunately, “no”. But Mike Hewitt of DollarDaze.org writes, “The Swiss Franc was the best-performing currency of the 20th century, losing only 80% of its value.” Hahahaha!

And it is all going to get worse, too, and people will get more angry, and some of them will remember that The Magnificent Mogambo (TMM) always said that elementary mathematics and history prove that the majority of stock market investors must always lose in the long run so that a small minority of investors can make some meager gains (sometimes), and this losing majority must also pay the rapacious Wall Street financial services industry huge, huge, HUGE sums so that fancy-suited sharpies can make a lot of money ALL the time by “managing” all that money and making a complete failure of it, and the sting is mostly felt because the losing majority must also pay the government lots of taxes and fees levied on all the various handlings of this money, and they will blame me, like it is my fault that simple mathematics makes it inescapably true, or that the stupid, socialist/communist/fascist way that they vote has created a ravenous, cancerous monster that is going to destroy us all by necessitating that the Federal Reserve keep creating all the money and credit that the government needs to borrow, and these “majority losers” will sue the living hell out of their little “financial planner” or “account executive” that told such a lying piece of stupidity!

In short, the biggest and most damaging lie of all is that everyone can retire on the money they “invest for the long term” in the stock market. It can’t be done. It is mathematically impossible. You will lose more in purchasing power (as central bank monetary inflation destroys the currency by printing enough to finance the higher stock prices) than you will ever net in gains, and so the best, absolute best thing that can happen to the majority of investors is that they will invest the equivalent of a whole pizza today to get back a half a pizza when they retire, instead of merely a tenth of a pizza, if that! Hahaha!

Such are the just desserts of people stupid enough, with a media stupid enough, with an educational system stupid enough, and a government both stupid and corrupt enough to create a boom with a fiat currency, and to actually make a bet with everything they have that such a preposterous monetary system will not go bust, although it has, 100% of the time in all of history when any other country full of people stupid enough, with a media stupid enough, with an educational system stupid enough, and a government both stupid and corrupt enough to create a boom with a fiat currency.

The good news is that the astute can succeed where all others fail by merely buying gold and silver the whole time that the government is doing this, which is the easy way (”The Mogambo Way (TMW)). And we all love it when it is easy!

Well, I do anyway. And since it is easy to stop here, I will.

Well, after I make a pitch for buying gold, silver and oil. Now I’ll shut up. Just remember what I said. Okay, now I’ll REALLY shut up.

Source: The Biggest Loser of Purchasing Power