Today the Fed cut its target rate by one-half percentage point to 4.75 percent.

They also cut the discount rate by one-half percentage point to 5.25 percent.

As expected, the markets loved it not only because the Fed has cut rates, but because the cuts will take time to bite — the Fed appears to have signaled a sustained easing policy, beckoning both inflation and stagflation.

However, it was in essence, a capitulation to Wall Street demands and a general sell-out of responsibility to all American citizens.

As our readers will know, we have long urged our Fed to raise rates to curb growing inflation — a "stealth inflation" that our government has been hiding from us.

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Early last month, when it looked as if a seizure in the inter-bank lending market could threaten our entire economy, we urged a temporary rate cut.

The Fed responded by cutting its discount rate and pumping liquidity into the system.

[Editor's Note:Big Government Lies Exposed. Go Here Now.]

We applauded the provision of what appeared to be need for vital bank liquidity.

However, as events unfolded, it became clear that we faced not a "lending" problem, but a "credit" problem. Even flush with funds, our lenders were afraid to lend.

Faced with this new information, we realized the Fed was, as we said, "pushing on a string" and should put its target rate on hold, at least.

We argued that a rate cut could do little good and risked doing great harm.

We did not change our underlying opinion that the Fed should actually raise its rate over time. But we felt that in today's panic prone conditions, a rate hike could do unnecessary damage to consumer demand.

So we agreed to a rate hold, but certainly not a rate cut.

Our basic reasons are as follows.

In their wisdom, our Congress established our Federal Reserve Bank to be "independent" of politics, or the popular will.

Politicians like power and control. Making our Fed independent was a great, statesman-like decision and deserved to be valued highly and to be defended, in our national interest.

The prime duty of our Fed, as with other countries' central banks, is to ensure that our currency remains sound and thereby, act as the foundation for a sound economy.

The credibility of our dollar is crucial to every holder of U.S. dollars, including foreigners (euro dollar holders) who have financed much of our government debt and also many of our mortgages, including sub-prime!

A fall in the international value of our dollar "robs" not just Americans traveling abroad, but every man woman and child in our country!

A weak dollar means we all (every American) pay more for imports, including essential commodities, such as oil, wheat, and milk.

No matter how much we earn, a weaker dollar is robbing us all, even after tax.

Of course, as we have forecast for many months, we believe our economy has been in contraction and now faces a recession.

Recessions are not comfortable, but they are not inherently catastrophic. Indeed, we believe they are natural corrections in a healthy "free market" economy.

In keeping with this free market environment, clever people in Wall Street investment banks made great profits — good luck to them.

Sadly, some were a little too clever and apparently allowed excessive greed, deception, and recklessness to overcome their core values. For several years they got away with it and made massive profits. It allowed them to pay themselves an estimated $25 billion in bonuses for 2006.

[Editor's Note:Buffett Says This Book Made Him Billions]

In 2007, some of the deceptive derivatives became suspect, triggering the subprime crisis which we forecast. This triggered a "lending" crisis, which as we have said will likely lead to a "solvency" crisis.

All this is happening in the face of a natural recession. A heavily leveraged Wall Street is worried — very worried.

Today, the bleating cries for a rate cut from self professed Wall Street "free marketers" and their related media, reached a crescendo that has been seldom witnessed. Even some politicians had tried openly to bring political pressure upon our supposedly "independent" Fed.

We think it is a little rich that when free marketers lose on reckless bets, they should turn to the Fed to bail them out and rob each and every single American to pay for it by means of depreciated money and inflation; leading, in turn, to stagflation!

Frankly, it both amazes us and saddens us to see our Fed capitulate, when the need to stand firm was greatest.

In essence, we face two problems.

First, we face an economic recession, in which lower rates could help, over the long (six months to one year) term.

Second, and more importantly, we face a catastrophic fall in our dollar.

It is catastrophic for three reasons.

First and most obviously, the costs of imports, including oil, will rise, fanning higher the inflation already in our system, of which Ben Bernanke has long warned.

Second, an unleashing of inflation, in the face of recession, will lead us straight into stagflation — the worst of economic woes.

Finally, the foreign holders of our massive government debts may be tempted to sell out when they see both the capital value and now the interest yield on their investments falling. This could preempt a catastrophic fall not just in our dollar, but in out government's ability to fund its massive debts, driving bond yields to highs not seen for many years.

What action should our readers take to protect themselves?

Well, as most of our readers will know, we have long predicted the present situation.

So, surprise, surprise, we suggest our conservative readers keep to our past recommendations, which remain to accumulate: cash, short-term (90-day) Treasuries, gold, and agricultural commodities.

Our more aggressive readers may want to accumulate exchange traded funds (ETFs) that are short the stock markets, following an expected market rise in the short term.

Editor's note:
Big Government Lies Exposed. Go Here Now.
Bernanke Reveals `Fiscal Crisis` Ahead
Buffett Says This Book Made Him Billions