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"Why the Fed Must Cut a Full Point Off Rates"

By Jim Cramer
RealMoney.com Columnist
12/5/2007 9:21 AM EST
"I've been doing a book tour lately and wherever I go -- radio or TV -- everyone plays the "rant." They want to know if I meant it.

I laugh. Because I wasn't forceful enough. After we got that initial rate cut, I thought the Fed got it, got what I was talking about when it came to the slow-motion train wreck that was happening in the U.S. housing business.

I was wrong.

As The Wall Street Journal says today: "Most Fed officials thought they were finished cutting rates in the near term on Oct. 31, and several said so in unusually frank speeches afterward."

There it is. The reason we pick up the paper and read all of these horrible stories. The Fed actually thought it was done! It was just beginning to act and it had to move fast. But no, it thought it was done!

I have been struggling these last few weeks with how I often feel that I am just a popoff about how bad the Fed has been. Nobody likes to criticize the Fed openly and harshly. They are too esteemed and austere.

But are they? Will someone please tell me an endeavor where a CEO could be that wrong about his business, given what was happening at Washington Mutual (WM - commentary - Cramer's Take - Rating) or Citigroup (C - commentary - Cramer's Take - Rating)? Given what Lennar (LEN - commentary - Cramer's Take - Rating) and Toll (TOL - commentary - Cramer's Take - Rating) were saying? Given the run on Countrywide (CFC - commentary - Cramer's Take - Rating)?

What planet were these guys on?

I have some ideas. There are stats that come out from the St. Louis Fed -- Bill Poole! -- that show a continued increase in loans for construction and business. They haven't slowed. There has been no collapse in employment. Corn and oil and mineral inflation aren't good.

But these are all old wars. Deflation is the new war, and the fact that the Fed hasn't even mentioned that challenge yet is beyond me.

I am still hopeful -- I hate that word -- that the turmoil now is quite obvious even to these guys, but they are all about the show and not about the substance.

We will have major homebuilding, insurance and bank failures if rates don't come down by a full point in the next two or three months. Then the damage will be so great that we will have to go back to 2% and start the insanity all over again.

These Fed folks are just plain reckless.

But, of course, they come off as prudent.

What a world. "

(in www.realmoney.com)