Rate Cut!

Fed does make that 50 BP rate cut. Markets wanted more, of course. Dow dropped under 8,900 there for a while. Of course...it's not like it'll do any good anyway.

So far at least, the Fed (and Treasury) have had less success in restoring confidence. "Pushing on a string" is the term often used to describe a central bank that can't get economic activity to respond -- no matter how aggressively it acts -- because sentiment is so fragile, not to mention the banking system.

There are three likely long-term outcomes to such a scenario, and only one of them is particularly hopeful -- kinda like what coaching legend Woody Hayes said about passing the football: "Only three things can happen, and two of them are bad."

• The Fed's actions help put a floor under the economy, preventing a severe recession and paving the way for a normal recovery.
• The Fed cuts rates to zero and the economy remains moribund, i.e. the dreaded Japan scenario.
• The Fed reignites inflationary pressures by continuing to devalue the dollar via its "easy money" policies. (If you believe that's the most likely outcome, best to have some exposure to commodities, TIPs and equities since cash will become trash - perhaps literally.)

I'm betting on both number 2 AND number 3 myself. The 1% interest rate "REFI YOUR HOME NOW! INTEREST RATES AT HISTORIC LOWS!" beast is how we got into this mess in the first place.

Hell, I expect us to be at 0.5% before the end of the year. There will be big pressure from Wall Street to drop the rate to zero. They'll have to. They'll have no other choice. Not even Obama will stop them.

And then the hyperinflation fun REALLY begins.