In fact, the Fed is loosening monetary policy by lowering federal interest rates. Now, the overwhelming majority of the pessimists out there say that either the Fed is "too late" or that it is fanning the inflation flames. They cling to the notion that credit has already dried up and the economy is doomed.

The problem with this scenario is that in fact, credit has not dried up for credit-worthy borrowers. Loan volumes are at record levels. Banks are still lending. And there is plenty of credit available for both businesses and consumers to spend.

Few governmental organizations can move the market like the Federal Reserve. But just what is the Fed? And just what exactly are they talking about behind closed doors on Capitol Hill? Two words: Interest rates.

When the Fed decides to raise or lower the Federal Funds Rate–even by half a percentage point–the ripple effect can be felt from the farms of Nebraska to the factories of Detroit… and in every household along the way! To learn more about how the fed affects your wallet, read "The Housing Ripple Effect Affects Every Investor."

So What is Everyone Worried About?

Even Standard & Poor's reported that cash on corporate balance sheets grew from $329 billion in 2000 to $640 billion in early 2006. As of mid-February, that total was down slightly, but that still doesn't refute the fact that American businesses are in the strongest financial position in 20 years!

And what about consumers, those engines that fuel our national economy? Yes, some consumers are mired in too much debt, but believe it or not, most households are actually in pretty good shape. How do I know this you ask? Because the Federal Reserve's December 6, 2007 Flow of Funds Report told me so. Over the long term, the net U.S. household wealth in the third quarter of last year was up 51% from 2002! In fact, corporate balance sheets and household net worth are both in better shape than in 2002!

The Real Deal on Real Estate

And last but not least, what about housing? We've all been bombarded by headlines about the millions of mortgages that are resetting this year that could end up in foreclosure. Well, ask yourself one question: Where does all of this data come from?

Much of the real estate data out there comes from a company called RealtyTrac that is known for its scary headlines. They reported that Detroit had a 5% foreclosure rate last year. If you look at the national 2007 foreclosure rate, it was only 1.033%... which is incredibly low compared to historical standards.

Here's the real deal on real estate: Ok, home sales fell in January 0.4% to 4.89 million. But that was nearly level with the revised December rate of 4.91 million. See–that's not so bad. That means that housing is stabilizing.

There's even some good news out there: Sales of single family homes rose more than 0.5% and the median cost of a single family home was $198,700, which means that homes across the U.S. are much more affordable.

Whatever You Do… Don't Stop Believin'!

The March 11th stock market rally shows us us what can happen when the fear subsides (even if for a day). If the stock market's sharp surge was in celebration of the Federal Reserve's move to help the credit markets, imagine what can happen when the news on foreclosures and mortgage defaults improves! We are at the peak of subprime adjustable rate mortgage resets. It won't be long before we get hard housing facts. When we do, I believe we will discover that most homeowners stayed in their homes and most continue to make their payments as agreed. With that news, we will see a permanent improvement in investor confidence and stock prices!

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