By cutting the Fed funds rate by only 0.25 percent our Fed as good as gave up.

Now we're between a rock and a hard place.

Even a glance at the financial news media makes it clear that the financial strains are indeed increasing and that the credit crunch is far from over.

Meanwhile real estate prices continue to fall at increasing rates

In addition, real personal consumption is down from a positive 5 percent annualized growth rate in August to a negative 0.4 percent, in October.

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The real disposable personal income annualized growth rate of 6.1 percent, recorded in August, fell to a negative 1.7 percent by October.

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And yet our Fed felt able to make the unbelievably sanguine statement that there is evidence that our economic growth is "slowing."

The stark reality is that our economy is grinding to a halt!

All these are lead indicators of a recession. They cry out for the major Fed rate cut — 1 percent to 2 percent — that we have been calling for.

On the other hand, I believe there is clear evidence that inflation is increasing, although it is far too late for action there, with recession looming.

Here it is particularly interesting to note that the Fed sees a modest improvement in "core" inflation. That's the amazing government figure that ignores the fact that real people actually eat food and use oil products such as gasoline, heating oil, and plastics!

Why did the Fed cease to rely on headline inflation data? The answer of course is that this too — despite being "cooked" to the downside — is rising fast.

The real inflation picture, which the Fed sees but does not wish to put in the limelight, is calling for higher rates.

And what about our hugely depreciated dollar, which also cries out for a rate hike?

Most interestingly, the British and the Canadians both lowered their rates by 0.25 percent last week. They fear recession more than inflation. This gave our Fed vital wriggle-room for its own quarter-point cut, which it took.

Nevertheless, the stock and long-bond markets both expected a 50 basis point cut and are, naturally, disappointed. The Dow, accordingly, fell 300 points in less than two hours. No one wins.

Well, we are far more than disappointed and feel our disappointment will be shared by many, many more in the months ahead.

As we have pointed out before, our Fed has been backing itself into a corner for many months, if not years, by failing to deal early with the massive excesses of the Greenspan "bubble" booms.

More recently, the Fed has been able to pretend that recession is not fast approaching, by diverting attention to lagging, "rear-view mirror" indicators.

Looking forward through the windshield, we see our economy headed fast for a recession — a recession that calls for a major cut in rates.

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It is true that the Fed is in a corner. Instead of fighting its way out, it has chosen, on our behalf, to stay asleep and do absolutely nothing effective.

In short, our Fed has ignored its prime duty to stave off recession.

Yesterday's inaction shows vividly that our Fed has failed to move out of a "check" situation and is setting our economy up for a much more painful "checkmate" sometime in 2008.

The world will all pay dearly for yesterday's inaction by our Fed.

However, cash will soon be more than king, it will become an emperor. A killing will be made in the years ahead by those who have followed our advice to accumulate cash.

I believe that within the next two years, most assets, including stocks, real estate and commodities, will be at bargain-basement prices, offering great opportunities to those investors who have remained cool, and prudent — in cash — particularly in short-term treasuries of sound currencies.

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