It seems to me then, that the very last thing the Fed should do now is to lower the cost of borrowing. Aside from its notorious inflationary effects, such a move further rewards the assumption of debt and punishes saving and investment.
Separately, isn't the debt load even more damaging now since more and more wealth, however created, must be oriented toward debt service instead of toward ostensibly more productive purposes? It's hard not to worry.
And separately again, I've read someone saying that the 'official' figures of the recent stock market decline fail to factor in the devaluation of the dollar. Combined, they actually represent a substantial correction already.
Last part first. Most multinationals hedge their accounting to take some fluctuation of currency into account so some of it is factored in but I think that the international divisions of many of our biggies [like IBM, GM, Chase, etc] are propping up the weaker domestic divisions. I see some of this in the quarterlies and Annuals but you really don't get the nuance that inside info gets and I am no longer in the inside circle to ask those questions politely - so some of this is based on experienced assumptions.
On borrowing, we have a two edged sword right now. Lowering the cost of money will push up inflation a bit AND increase debt load BUT it might also spur some spending out of the mess we are in IF IT IS MANAGED CORRECTLY. That means no quick cheap loans for spec houses, no cheap loans for flippers, no cheap loans for predatory lenders to take advantage of less than knowledgeable borrowers. If a program were in place to establish bedrock mortgages for homeowners to grow into their home equity and establish a foundation then it would be worth it.
Second problem with dropping rates is folks who safe harbor to treasuries are getting hammered. The FED doesn't seem to want the individual investor parking money in the Treasury. They just make it too unappealing.
Debt service on the National Debt is staggering. Since Bush took office the ND has gone from $4.5Trillion to nearly $9.5Trillion. The INTEREST on this debt is over $600Billion Annually. Considering we have a $3Trillion Annual Federal Budget, that means 20% of every TAX DOLLAR goes to Debt Service. Bush's contribution is 10% of every Tax Dollar, every year, just for INTEREST.
Debt Service is killing us. Now I'm not saying it is just poor economic policy but $7.5 of the $9.5Trillion in National Debt came under Reagan/Bush1 and Bush2. The other $2Trillion came from the other 41 Presidents COMBINED.