Four Stocks to Buy If the Fed Gets a Clue

They need to be low enough to help bring risk-taking, credit establishment, and fixed-income purchases back to more normal levels. They need to be low enough to help mitigate the downward adjustment to real estate prices. They need to be low enough to help reduce consumers' refinancing costs.

If a general recession starts, the Fed will slash rates quickly, by my guess down between 2% and 3%. They can do this now, anticipating the impact of the great deleveraging on the economy, or they can wait for the recession. Except that after a recession starts, it will be too late, and the deleveraging could get very ugly.

That would be a shame.

Aggressive short rate cuts are not a bailout. They will not reinflate the great debt bubble. Too much money has been lost by stupid bankers and investors to recreate the moronic conditions that just existed.

Right now, we are simply trying to normalize the fixed-income markets and help mitigate the housing bust. If we happen to get some animal spirits in the equity markets, that wouldn't be terrible as far as collateral damage goes.

But if the Fed keeps fighting the last war -- the inflation battle -- we risk entering a deflationary bust. If the Fed keeps kidding itself that everything is just fine, then the relief will be too little, too late. The deflationary effects of global labor competition combined with major financial deleveraging more than outweigh the inflation risks posed by global commodity demand.

Therefore, we need the Fed to act with foresight and courage. We need Ben to cry uncle on the inflation war and focus on growth.

We need the Fed to slash short-term rates now to make the statement that they get it. The Fed funds rate should be at 3% today, with a bias toward concerns about economic growth.

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