Analysis: Fighting Vicious Economy Cycle

When people are panicking, it's hard to stop the stampede with talk about cutting a "federal funds rate." Economic fears on Wall Street and around the world are making people and businesses hunker down, and that could make all the recession worries come true — a vicious cycle the Federal Reserve, White House and Congress may be hard-pressed to break.

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We are in a vicious cycle: falling housing values cause losses on securities, which reduce bank capital, thereby tightening lending and causing house prices to fall further. The cycle has spread beyond housing, but housing is the place to fix it.

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