You remember the childhood story of Goldilocks and the Three Bears, right? For a while economists were comparing the American economy to that fairy tale and many of us believed them. When you get to the end of the story, it's important to remember the bears come home and Goldilocks runs away.

That is the part of the story the American economy is currently in. Due to deteriorating financial conditions, the Fed held an emergency meeting and cut the key overnight lending rate by .75% and the discount window rate by the same amount.

American markets were closed yesterday for the Martin Luther King holiday, but the world's markets got a chance to respond to the stimulus plan proposed last Friday. Overwhelmingly they didn't like it and most foreign stock exchanges suffered losses. A huge loss for the Tuesday's open of the stock exchange was forecast and so far the market is down nearly 2%.

The Fed still meets at the end of the month and the markets have already priced in an additional half point cut which will move the prime rate to 3%, down from its high in August 2007 of 5.25%. Let's not forget this rate only impacts short term lending rates especially for auto loans, credit cards and home equity lines. The 10 year bond yield is the key metric for long term mortgages and it too has dropped as bonds become perceived as safer bets. Bond prices and yields move in opposite directions. - By Sal Lake Real Estate Blog