Kass: The Fed Gets It, and a Cut Is Coming

This article originally appeared on RealMoney Silver at 8:06 a.m. EDT on Aug. 29.

Could the Fed finally be waking up to just how bad things are?

Yes -- and it's about time.

To many, the Federal Reserve's head has been firmly in the sand.

To many, the Fed's minutes released Tuesday suggest that the Federal Reserve appeared to be exercising policy based on a strict adherence to its academic forecasting models -- provided by perennially optimistic economists like R. Glenn Hubbard and Lawrence Lindsey and by the cheerleading by the Secretary of the Treasury Henry Paulson -- rather than having a real understanding of the severity of our economic system's structural problems and of the breakdown of the credit mechanisms that underwrite domestic growth.

To many, the market's recent drubbing has started reflecting investors' impatience with the delivery of a Fed-inspired solution and the mounting fear for the future of our domestic economy (excluding the ever vibrant export-driven sectors) seen by more and more market participants. In reality, the economic problems have been multiplying daily.

Believe it or not, there are still some -- such as Ben Stein and others -- who do not understand the significance of a litany of woes:

1. The subprime contagion and the Black Swan of Credit;

2. The magnitude of the financing problems and unsold inventory of housing that will depress housing for another few years;

3. The ramifications of the decline and fall of structured finance on not only the residential real estate markets but on a broadening swath of our economy;

4. The slippery slope of the consumer's levered balance sheets and his dependency on asset appreciation of the stock and real estate markets;

5. The emergence of Democratic leadership and its role on emerging protectionist trade policy and the implementation of higher taxes; and

6. A lot of other headwinds that used to be tailwinds.

Above all, the implications of a lengthy credit unwind after years of excesses and outsized (and newfangled) expansion in debt have, until recent trading sessions, fallen on deaf ears.