Bernanke has taken US rates down to an effective 0%, and we're going even lower. Japan has showed him the way. And yes, our currency will be destroyed along the way.
So why does he do it?
Because he's scared. The housing crash wave is about to come crashing down upon the shores of America, and he knows it. And he knows the only way out of the housing bubble mess is to create more bubbles, while destroying the purchasing power of the dollar.
Then why cut? In a word: housing. The slump in the housing market is so severe that it still threatens to drag down the rest of the economy.
Housing's crash has multiple impacts: throwing homebuilders out of work; making homeowners feel poorer and less willing to spend; and threatening a generalized credit crunch by casting doubt on the value of subprime mortgage-backed securities.
What's more, the housing crash isn't over, judging from the mounting inventory of unsold homes. Global Insight, in a report issued before the Fed's announcement, wrote, "We expect the damage to come through soon, with gross domestic product growth slipping to just 1.5% in the fourth quarter, and doing no better than that in the first half of 2008."