Money Market Investor Funding Facility

A batch of economy-wide stats was released Friday morning, covering retail sales, industrial production, import prices and consumer confidence.

The verdict? This is a savings of 2 percent. Call Goldilocks 2.0.

Might the throttle current financial crisis slows growth slightly more in the next six months? Yes, perhaps. That there will be negative earnings surprises, especially financial companies? Sure.

But the bears would have us believe the subprime credit virus heralds the end of the world. They are wrong. Remember this: Our free market capitalist economy is resilient and durable. He has proven repeatedly that it can take a punch.

Of course, the odds of recession have increased. But then what? We had virtually uninterrupted prosperity of twenty-five years, to return to the supply-side economics and technological boom launched by President Ronald Reagan. Since then, we've had 93 quarters of positive GDP and only 5 negative. This makes for a truly phenomenal batting average.

Consider this: the marginal tax rates are low. Inflation is low. Interest rates are low. And the global economy remains strong. The award - which I still believe is the best barometer of corporate health and economic future - has behaved surprisingly well during this difficult part of the turbulence. In fact, the sum total of the assault bears "supposedly" is only a 4.5 percent correction from Dow 14,000 and other index peaks registered two months ago.

Yes, profits are sloppy. And yes, there are credit shocks out there yet to be revealed. However, the Federal Reserve will reduce the cost of money by reducing its target rate base Tuesday. President Bush will veto any Democratic tax increase. And at the margin, the history of war in Iraq takes a turn for the better. Meanwhile, American entrepreneurs are still working hard.

Speaking of next Tuesday, the best thing the Fed can do is deliver a big bang, reduction of shock and horror that would bring the Fed funds target 50 basis points to 4.75 lower base percent. At the same time, it should lob a percentage point on the discount rate loan, the cut of 5.75 to 4.75 percent. It would be a gesture that inspires confidence to all concerned: borrowers, lenders, businesses, consumers and mortgage holders. Not only cut the cost of money add significant new liquidity to the economy, it will increase the value of assets across the board.

The Fed could also consider setting up a special mechanism for non-bank lending institutions experiencing a liquidity crisis. Perhaps also a temporary liquidity facility for commercial paper lenders. The market for commercial paper funds is vital for many of the daily activities of companies around the country and is the market that has been hardest hit.

Such monetary front loading would be very powerful indeed. However, if the Fed goes small quarter-point reductions only for Fed funds and discount rates, many investors will be encouraged to withhold money while they wait for interest rates down to levels last much lower later this year or next. In other words, a timid Fed action might actually prolong and deepen the economic slowdown.

This is not the time for small-ball. It is time for Bernanke and company to go big.

And do not forget that taxes are just as important as money. President Bush and Treasury Henry Paulson should absolutely squash the man all the Washington rumors of tax increases, particularly a tax increase cap gains. If investors expect a tax increase cap gains, they have every incentive to launch a massive wave of selling stock. Needless to say it would be absolutely disastrous for the overall economic picture.

The animal spirits may have their wings clipped a bit t.