“Crash!” says one tabloid.

“Black Monday,” proclaims another headline.

Yesterday saw stocks collapsing in almost all time zones. It was the worst one-day fall in Britain since September 11th, says the Financial Times .

“Panic sparks plunge in global markets,” says today’s FT headline.

This morning, markets in Asia are still falling. Stocks in Indonesia are off 8%. Shanghai is down 4%. Hong Kong shares fell 8%. And in India, they had to close the Mumbai stock exchange after shares fell 9.8% in the first minutes of trading.

Oh say does that share-strangled banner yet wave
O’er the land of the free lunch...?

We’re talking about our own “Crash Alert” ensign, the one in black and blue colors with a skull and crossbones on it. The poor flag is a bit tattered. A bit faded. A bit lonely. But there it is.

What is most astonishing about the current meltdown in stocks is the astonishment with which it is greeted. Don’t people know that stocks go down as well as up? Guess not.

But one time zone, Eastern Standard Time, was spared yesterday thanks to Martin Luther King. It was a national holiday in the United States of America. So, Wall Street missed the panic, at least, for 24 hours. But today is a different story all together.

The Fed cut rates 75 basis points a week before their regularly scheduled meeting next week. This is the biggest cut since 1982, after rates had been driven up to 20 percent to fight inflation.

“The committee took this action in view of a weakening economic outlook and increasing downside risks to growth,” the Federal Open Market Committee said in a statement.

The Dow was down 450 points this morning, but our Trade of the Decade prevailed. After hitting a three-week low yesterday, gold rallied after the Fed announcement, up to $874.64 an ounce, up ten dollars from yesterday. Other commodities didn’t do so well though; oil and based metals took a tumble, as did agricultural commodities.

Yes, dear reader, the top in the credit cycle was reached, probably about nine months ago. Now, we’re on the downhill run. The goal is not to make money on this slope but to avoid accidents. Watch out for trees and rocks, check the brakes, put on your seatbelts, and try to arrive at the bottom in one piece. Then, you can begin to make money again. At least, that’s the traditional formula.

Typically, assets go down in price during a credit contraction; as the mistakes of the exuberant period are corrected, things turn out to be worth less than people thought. Relatively speaking, the value of money goes up. People have less faith in business plans, in anticipated rates of return, in earnings estimates, in credit ratings, and in sophisticated financial instruments and more faith in cold, hard cash.

But that’s where this story gets a little fishy. The cash people know is not as cold and not as hard as it once was. And now, surely, this jolt to equity markets is going to put more pressure on both Bush and Bernanke to come up with ways to heat up and soften up the green paper. Today’s Wall Street Journal tells us that more and more economists are saying the coming recession could be “severe.” And the head of the IMF came out and said that the international financial crisis had become “serious.”

It’s no surprise that the Fed cut rates before their regular meeting later this month. Congress may get behind Bush’s fiscal stimulus quickly too. Neither initiative is likely to restore the glory years of the boom but they could do great damage to the dollar.

Asian exporters and the oil exporters in the Gulf have trillions of dollars. Until now, they took the decline in the value of the dollar with grace and good humor. First, they believed the fall in the greenback was gradual and limited and second, they saw how it enabled them to increase sales to North America. But now, things are changing. They are going to see the feds acting in desperation and they are going to worry about a big, uncontrolled decline in the value of their reserves. Plus, with America entering a recession, they can expect to see no further sales gains.

This suggests to us that that dollar in particular, and paper currencies, generally, may not be the cold, hard cash you want to hold. Maybe gold won’t be so bad, after all.

*** More thoughts? You want more thoughts?

Well, first our colleague Dan Denning sends this old classic from the ’70s...Dan Akroyd pretending to be President Jimmy Carter on Saturday Night Live and 30 years ahead of his time:

“President Jimmy Carter: Good evening. On Tuesday, we Americans will have the opportunity to exercise our role as citizens in a free democracy. Yet, only a third of the eligible voters will actually cast ballots. The other two-thirds are, in a sense, very lucky. Because they do not know what’s going on.

“Last week, I delivered a message on inflation. Since then, the dollar has dropped in value, the stock market has sustained record losses, and the whole Dow price index increased 0.9%. In other words, our economic system is screwed, blued and tatooed! We just have to face the fact that there is simply no way to fight inflation in a capitally-intensive, highly-technological, conflict-riddled, anything-for-a-thrill world of today. That’s why, tonight, I want you to try to look at inflation in an entirely new way: Inflation is our friend.

“For example, consider this: in the year 2000, if current trends continue, the average blue-collar annual wage in this country will be $568,000. Think what this inflated world of the future will mean – most Americans will be millionaires. Everyone will feel like a bigshot. Wouldn’t you like to own a $4,000 suit, and smoke a $75 cigar, drive a $600,000 car? I know I would! But what about people on fixed incomes? They have always been the true victims of inflation. That’s why I will present to Congress the ‘Inflation Maintenance Program’, whereby the U.S. Treasury will make up any inflation-caused losses to direct tax rebates to the public in cash. Then you may say, ‘Won’t that cost a lot of money? Won’t that increase the deficit?’ Sure it will! But so what? We’ll just print more money! We have the papers, we have the mints. I can just call up the Bureau of Engraving and say, ‘Hi! This is Jimmy. Roll out some of them twenties! Print up a couple thousand sheets of those Century Notes!’ Sure, all these dollars will cause even more inflation, but who cares? Everyone will be a millionaire!

“In my speech last week, I said that America would have to undergo an austerity program, but since this revolutionary new approach welcomes inflation, our economy will be free to grow, and we can spend, spend, spend! I believe the watchwords for the ’80s should be ‘Let’s Party!’ And in that spirit, I’d like to say, ‘Live, from New York, it’s Saturday Night!’”

*** “Interestingly,” says Short Fuse, reporting from the Sundance Film Festival, “one of the taglines that we’ve batted around for I.O.U.S.A. is, ‘The party’s over.’ Seems pretty fitting right now, eh?

“The festival has been going quite well thus far – every one of our five screenings is entirely sold out and Super-Size Me ’s Morgan Spurlock attended our premier this past Saturday.

“But what was really amazing,” continues Short Fuse, “was what happened at the screening on Sunday. After each film is a Q&A, where Patrick Creadon, the director, Addison Wiggin, who is the executive producer, and the films two ‘stars’ – U.S. Comptroller General David Walker and the Concord Coalition’s Bob Bixby – answer questions from the audience.

“When Mr. Walker took the stage, the crowd at the Park City screening got to their feet and gave him a standing ovation.

“The reviews have started to come out on the movie...and indiewire.com summed up I.O.U.S.A. pretty well, in my humble opinion. They called it ‘crucial viewing for anyone who claims to care about America.’”

More to come. In the meantime, you can get your I.O.U.S.A. updates here:

I.O.U.S.A.

*** What will happen when the feds really go to work on the dollar? Ben Bernanke has pledged to drop money from helicopters, if that is what it takes to head off a Japan-like slump.

Mr. Market wants a correction. The feds want to stop it. And never before have the feds had so many ways and means to try – all of which depend on reducing the value of the dollar in order to encourage the illusion of prosperity.

Here, we sense a pause – for clarification – is in order. When the feds speak of “stimulating” the economy with lower rates and rebates, they are merely speaking the humbug language of modern economics. The only thing that really stimulates a consumer economy is more consumer spending. And consumers can only do their consuming if they have money. So, the only thing the feds can do is to give them more money to spend. But the feds don’t have any real money. All they have is the machinery of credit and inflation – they can make borrowing less expensive, in nominal terms and they can “print up” more pieces of green paper and distribute them to the public. That is to say, the only thing they can do is to inflate, lowering the value of each bit of currency in circulation.

The greenback floats on air; theoretically, the financial authorities can create a gust of wind and push it in any direction they want. A few years ago, a Paul Volcker might have resisted; he might have urged the Fed to protect the currency and curb inflation. But Tall Paul is now in the private sector warning his clients to take cover. Some years ago, too, a few die-hard Republicans might have opposed a fiscal stimulus package as just more reckless spending from the Democrats. But now it is the Republicans who propose the stimulus, and there is only a single member of Congress who won’t go along – Dr. Ron Paul.

Nothing stands in the way of destroying the dollar, except Mr. Market himself.

It is shaping up to be a grand show. Mr. Market on one side. The market manipulators on the other. We don’t know how it will turn out, but we are pretty sure there will be blood on the mat when it is over.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.