Have we already forgotten that super-low rates are what created this mess?. Tom Sowanick is CIO of Clearbrook Research, part of Clearbrook Financial, a Princeton, N.J.-based wealth-management service provider.

The new refrain from doom-and-gloom economists is that the Federal Reserve needs to cut interest rates to as low as 2%. These were the same ones that preached "one and done" when the federal funds rate was at an ultra-low of 1%.

The problem with the Fed cutting rates to a near-hysterical level of 2% is that it will likely encourage another round of unwise lending and borrowing, either for real or financial assets. Haven't we learned that ultra-low interest rates beget unhealthy financial innovations that attempt to generate incremental yield, which may or may not eventually pay off?

Rather than re-pricing market yields, the Fed should consider broadening the availability of discount window borrowing to non-banking financial institutions that need emergency funding. By opening the discount window, the retail investor and borrower will not be encouraged to take on undesirable teaser rates at a time when rates are pushed to unsustainably low levels.

Prudence

This is what happened in the 2001-2003 cycle: the Fed lowered the federal funds rate from 6.5% to 1% and kept the targeted rate from March 2003 through June 2004. Who wouldn't have wanted to borrow at such low interest rates, especially if the mantra was "one and done"?

Liquidity traps need to be avoided at all costs. Though the current credit crisis may wind its way into the broader economy, the economic data to date -- save from banks and other financial firms -- have remained pretty solid. There's a strong likelihood that layoffs will occur across most of Wall Street, but that doesn't have to flow through to Main Street.

Creating a "super" structured-investment-vehicle fund to work through the collateralized-debt-obligation and sub-prime crises is much more prudent and isolated than begging the Fed to massively lower interest rates -- and for what reason? The 75-basis-point cut of the federal funds rate since September 18 has had a corresponding effect of reducing the dollar value against the euro by 4.4%, the yen by 4.6%, and the Canadian loonie by 3.5%.

Lowering interest rates will only encourage further weakness in the dollar. The U.S. is still dependent on financing its huge account deficit with foreign investors. Fed chairman Bernanke is well aware of this dilemma. Reuters recently summed up his remarks to an audience of academics in Germany: "if the U.S. current account gap was to persist at current levels, foreign investors would eventually have enough of dollar assets." Put another way: when will foreigners tire of losing money by lending to the U.S.?

It was low interest rates that started the current credit crisis. The Fed should be wary of creating another crisis by lowering rates too far once again. -FWR

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