It's now official. The Federal Reserve just slashed interest rates again -- this time by 50 basis points. Combine today's rate cut with last week's surprise, 75-basis-point cut and you have the fastest decline in interest rates in years.

The federal funds rate, an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans, was cut to 3.0% from 3.5%. That rate was 5.5% just four months ago.

Today's cut comes on a day when the government reported that economic growth slowed significantly in the final quarter of 2007. The Fed's rational for its latest move is the continuing problems in the credit markets that are basically putting a squeeze on both consumers and businesses. The Fed also sees growing weakness in both the job market and the battered housing market.

“Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity,” read the Fed's statement accompanying the rate-cut announcement.

Hey, I know what the Fed is trying to do, but the question I am asking is this: Are we just prolonging the agony?

You see, in my opinion the Fed is fighting a forest fire with a squirt gun. Sure, the Fed can do its best to try and cut the cost of capital and open up the money spigot, but the real problems in our economy are not going to get fixed by less expensive loans.

The fact is that the housing bubble needs to fully burst, and it needs to completely unwind before we can get back to health. The damage done to financial institutions from heavily leveraged subprime loan exposure is going to have to play itself out, and we are going to have to start seeing some healthy economic activity in terms of more jobs and more robust consumer and capital spending.

The feeding of cheaper and cheaper money will certainly be inflationary, and that isn't good for long-term economic health. I hope that Mr. Bernanke doesn't repeat the mistake Mr. Greenspan made by continuing to cut rates down to 1%. If this happens, we'll see more bubbles, more troubles and more cyclical schizophrenia.

I hope for all of our sakes that I am wrong, and I hope that the Fed's move today doesn't prolong our agony.

Of course, I also am hoping for a cure for cancer and world peace.

State of the Union, State of the Markets

Everybody's worried about the economy right now, especially the Federal Reserve. We saw the central bank's solution to things today, and so far the market has responded positively to the 50-basis-point rate cut.

Despite today's trading action, I am approaching this market with a whole lot of caution. Just look at what's happened recently in both the domestic and the international markets since November.

The charts here of the S&P 500 and the iShares EAFE Index tell the tale of woe quite nicely.

In response to the past several months of declining markets, we've seen the Fed cut interest rates several times. We've also seen politicians get on the economic-solution bandwagon by proposing a stimulus package designed to get people out to the mall and spend, spend, spend.

The president and Congress now are very close to agreeing on a plan that will send $600 or so back to individual taxpayers so that they can go out and help “stimulate” the economy. My feeling here is that this $600 check will be little more than a blip, if that, on the nation's economic radar.

Rather than think about what politicians are doing to “fix” the economy, why not think about what you are doing to fix your own economic circumstances? The way I see it, you have a lot more control over your destiny than the president, Congress or anyone else.

The president's State of the Union speech may have been laden with talk about how we can help the economy, but I say you need to be more aware about the state of your own economic circumstances.

If you are fully invested in this market right now, I say you are flirting with disaster. We are on the verge of a recession -- or something akin to recession -- and both domestic and international markets are going to continue feeling the pain of the worldwide economic slowdown.

The only way to successfully protect your wealth from the ravages of this situation is to reduce your exposure to equities while increasing your exposure to cash, and to market sectors that perform well despite economic stagnation.

Right now, subscribers to my Successful Investing advisory service are watching this market turmoil with a clear head. We've managed to sidestep the sell off of 2008, and we have a high-cash position that enables us to pounce on beaten down equities once the market turns.

If you'd like to find out how my Successful Investing advisory service can help you navigate these precarious waters, just click here.

A Window of Opportunity for Homeowners

Are you wondering if all of the change occurring right now with interest rates, the Fed and the stimulus package is going to help you, the homeowner? I know I am, so that's why I asked my mortgage expert, Josh Lewis, for his thoughts about how the latest developments on Wall Street and in Washington will impact Main Street homeowners.

By Josh Lewis, Certified Mortgage Planner

The big news in the housing market lately -- besides last week's 75-basis-point Fed rate cut and today's 50-basis point cut -- was Congress' passing of the financial stimulus package. The headline of that package was the rebate checks that will be going out to many taxpayers. Unfortunately, those rebates phase out for most families earning more than $150,000 per year. In many parts of the country, household incomes at that level represent middle class families. While it may appear at first glance that these folks are being left out in the cold, there is a provision in the stimulus package that will aid many Americans. In fact, it may save some folks $400 to $600 per month.

That provision is the temporary increase in conforming loan limits which govern the maximum size of loans that can be purchased by Fannie Mae and Freddie Mac. Loans that fall above this limit are considered non-conforming or jumbo and require premium rates in the secondary markets. Currently, conforming loans are limited to $417,000. In areas such as Southern California and other high-cost markets, that means borrowers must make 25-35% down payment to qualify for the best conforming terms.

During the credit boom, this wasn't that big of a deal since Wall Street demand for all mortgage products caused the premiums for non-conforming loans to fall to minimal levels -- often .25% or less. Since the credit bust, these premiums have skyrocketed. Today, a jumbo loan will carry a rate almost a full 1% higher than a similar conforming loan.

In light of this reality, the House included in its package a provision to temporarily increase the conforming limits through the end of 2008. The exact amount has yet to be decided as Democrats believed they had agreed to a figure near $730,000 while Republicans thought they had signed off on something closer to $625,000. While either figure is a huge increase over current levels, it will be up to the Senate to sort it out and send a bill to the President with a definite figure. From all reports, the goal is to have this bill to the President for signature by, ironically, President's Day (February 18).

If all goes according to plan, lenders will be able to make loans at these new higher limits by the end of February. Any delays could push that wait until March. The bottom line is that this presents a huge window of opportunity for folks in the following situations:

If you find yourself in one of these situations, or any other where you feel like you may benefit from these new limits, I can help.

I'd love to add you to my information watch list. By signing up for this list, you'll receive updates on the legislation as it passes through the Senate on its way to President Bush's desk. I will also include rate updates so you will know where available terms are while we await the new limits.

With rates at four-year lows and the new loan limits fast approaching, many of my clients are deciding to put in an application package now. We take the application, pull the credit and determine what documentation will be needed to process a loan. As soon as the new limits go into effect, we will be ready to lock in a rate, open escrow and order the appraisal. There is no cost for this service and the borrower will determine if he or she wishes proceed once the final terms are known.

If you would like to be included on my watch list or get a loan package started, give me a call at 800.944.JOSH, or shoot me an e-mail today. Be sure to include your contact information and current loan terms so I can customize your watch list reports.