No wonder the US Federal Reserve cut its key interest rate to its lowest level ever this morning, and promised to do everything to promote "resumption of sustainable growth" in the US economy after saying that the economic outlook confronting the US had "weakened further".
In fact the health of the US economy is worse than even the Fed had thought a few weeks ago and more figures overnight confirm the slide is continuing.
In its post meeting statement in Washington (http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm) the Fed revealed it had changed its approach to setting the Federal Funds rate as well: instead of a fixed figure, like the 1% figures that it was up to this meeting.
The Fed has now adopted a range of 0% to 0.25%, which gives an effective rate cut of a minimum of 0.75% and up to 1%, according to the state of money markets.
The news sparked a big bump on Wall Street which had risen ahead of the decision, then bounced higher to be up around 4%.
The US dollar fell sharply and the Australian dollar jumped to above 69.50 US cents, a rise of 2 cents on the night. Oil rose, then fell, gold prices rose.
It was the 9th rate cut in 14 months, all of which have done nothing to stop the headlong plunge of the US economy into a very deep recession.
Investors had shrugged off the largest ever drop in US consumer price inflation last month of 1.7% and a worrying 18% plunge in new housing starts and permits in November from October.
House starts in November were also a massive 48% down on the same month of 2007.
The worsening state of the home building sector now has US economists forecasting a drop in GDP this quarter of 6% and as high as 8%. Deutsche Bank economists forecast an 8% annual rate decline today in New York.
Money market rates for cash are now a fraction of even the 0.25%, being just above zero, so the new target range is a concession to the flood of liquidity in the US economy as banks and other investors maintain their reluctance to lend.
The Fed indicated that these very low rates for cash would last "for some time"; an admission, without saying it, that the present depressed state of the US economy will continue for longer than many analysts think.
That was highlighted with this comment: "Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined.
"Financial markets remain quite strained and credit conditions tight.
"Overall, the outlook for economic activity has weakened further.
Meanwhile, inflationary pressures have diminished appreciably.
"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 further in coming quarters."
The Fed also revealed that it will starting buying a wide range of securities, effectively printing money, in an effort to boost the economy and get lending happening.
It will start looking at ways of boosting credit to "households and small business"
Consumer credit in particular is weak: down in October and August and probably down again in November and this month as car sales tank and banks further tighten credit limits and ration lending.
"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the statement said.
"In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
"The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level.
"As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.
"The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.
"Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.
"The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity."
And looking at the two major stats out in the US, its no wonder why: Deflation is raising its ugly head more and more as inflation at all levels falls sharply.
The cost of living dropped 1.7% last month, more than economists had forecast.
The US Labor Department report showed also that excluding food and energy, so-called core prices were unchanged from a month earlier. They could very well starting declining in the middle of next year.
US Housing starts last month fell a massive 18.9% to an annual rate of 625,000 in October compared with October. The Commerce Department said that fall was the largest so far recorded..
Worsening residential construction means the economy will likely shrink by 6 percent or more this quarter, the most since the early 1980s, some analysts said.
The CPI fell by the greatest amount since the Department of Labor began publishing seasonally adjusted changes in February, 1947.
The new housing figures were terrible and show there will be no upturn in the battered home building sector
