Every morning this week the Fed has announced another action to bolster financial markets.  At 7 a.m. this morning, the Fed and six other central banks announced a coordinated 50 basis point (half a percentage point) interest rate cut.  That's the first global economic policy change ever.

Although stock markets reacted positively this morning, they ended up down this afternoon.  Why?  Because markets are forward looking, and because they see recession spreading around the world.  Europe looks like it will be hard hit, and Japan may not fair much better.  Emerging markets will lose at least two or three percentage points of economic growth, but they will still be growing at rates of 6% or 7%.  The U.S. seems poised for 2% negative real GDP growth in the fourth quarter of this year, and the first quarter may not be much better.  The International Monetary Fund released its World Economic Outlook this morning with a catalog of the bad news.  The IMF's John Lipsky summarized the world economy in a speech before the National Association for Business Economics yesterday.

The world's G-7 finance ministers and central bankers will meet Friday in Washington to consider what else they might do to get the world's credit markets functioning again.  UK Prime Minister Gordon Brown instituted guarantees of interbank lending and encouraged other countries to follow his lead.

Treasury Secretary Hank Paulson held a press conference this afternoon to say "it'll be several weeks" before Treasury starts purchased "troubled assets" because "...we've got to get it right."  He pleaded for patience.  Watch it on C-SPAN.  Click on the first link below Treasury Secretary Paulson.

This morning, the Committee for Responsible Federal Budget held an excellent panel discussion on the financial rescue and what it will mean for the budget.  Watch it on C-SPAN.  Click on the second link below Treasury Secretary Paulson.  Uncle Sam is about to take on another trillion to a trillion and a half dollars of debt to pull the economy out of the worst financial meltdown since the Depression.  A large portion of that will be paid off when assets are sold down the road.  There's no way to tell how much the taxpayers will ultimately pay, but I would make a rough estimate based upon the S&L crisis of between $217 b. and $310 b. until proven otherwise.

The good news is that no one knows more about the policy failures that led to the Depression than Ben Bernanke and no one knows more about Wall Street than Hank Paulson.  They have reacted very aggressively and in unprecedented fashion to alleviate the financial crisis.  This should minimize the recession and job loss.  The bad news is that we will have a recession, and the unemployment rate is likely to peak next spring at between 7.5% and 8%.