The U.S. Federal Reserve and the major central banks around the world took action again Tuesday to keep the financial markets liquid, amid a credit crunch that threatens to slow global growth to a crawl.

The Fed added $50 billion in liquidity to the financial markets through overnight repurchase agreements. In addition, the European Central Bank, the Bank of England, and the Bank of Japan each announced previously unscheduled actions to add liquidity to the financial markets, Marketwatch.com reported Tuesday.

The Fed's action came after overnight rates soared 333 basis points to 6.44%, as private banks pulled back credit and became reluctant lend to one another.

Economist Peter Dawson told BloggingStocks Tuesday the aim of the world's major central banks is clear: maintain market liquidity to enable transactions between solvent parties.

"The Fed and other central banks may have drawn a line in the sand regarding not saving insolvent institutions, but their stance regarding functioning banks is clear: they're going to prevent solvent institutions from freezing up for lack of liquidity," Dawson said. "The private banks may not choose to use that liquidity, due to a reluctance to conduct business, but the funds will be there."

Could the U.S. economy tolerate, and, equally significant, will the American people push the nation's chief executive, the president, in the direction of more government intervention?

The view from here is: probably not. Everything in the American ethos and culture speaks against it.

Unlike in France, where the French Government is simply, "France," Americans, for the most part, view their government -- save defense spending -- usually as part of the problem, not the solution. 'Government is best which governs least' is a longstanding Americanism. And most investors/readers know about candidates who say they want to "get the Washington bureaucrats off the backs of the American people" and "clean up the mess in Washington!"

Americans are anti-central government, and they are anti-state (they generally dislike the limited federal government that exists). In the United States, it is always private first, public second.

Most Americans realize that every new U.S. president, upon taking the oath of office, faces his/her share of economic problems, none of which originated on his watch.

President John F. Kennedy spoke to this when he said (and someone said it before him), "It's true. Life is not fair. Some men go to war, and others remain at home. Among those who go to war, some men are sent to the front lines, while others stay behind. It's true. Life is not fair."

Still, although each age has seen its share of formidable economic problems, the scope, seriousness, and systemic impact of economic problems facing the new president, be it Democrat Barack Obama or Republican John McCain, may represent the biggest economic decisions since those President Franklin D. Roosevelt confronted upon taking office in the depths of the Great Depression in 1933.

What's one issue likely to give the president more gray hair? The kinds of systemic reforms to lobby for, on the heels of the federal housing bailout of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) following the collapse of the housing market and rise in mortgage defaults, said economist David H. Wang. The housing bailout will further increase the U.S Government's annual budget deficit, which is expected to reach $490 billion in Fiscal 2009, Wang said.

That the U.S. economy has recorded a series of rather negative statistics lately, would not be a revelation to the informed investor / trader.

That the U.S. economy is set to record a new data point of ignominious distinction, perhaps would be.

Assuming a modest 50-point close higher or lower Monday, the Dow Jones Industrial Average will have declined about 9% in June 2008, its biggest drop in June since June 1930 in the Great Depression, when the Dow fell 18%.

At mid-day Monday, the Dow was up about 45 points to 11,390.95. The Dow is down about 3,000 points since trading above the 14,200 level in October 2007.

Stock analyst C. Leonard Bauer said "the Dow reflects the underlying economic reality."

Many negative fundamentals

'We have a smorgasbord of negative fundamentals. Housing is in a deep slump. Oil and gas prices are at 20-year highs. Corporate costs are rising. Disposable income is falling. Credit requirements are way up. Inflation is rising. And job growth doesn't look too good right now," Bauer said. "Other than that, as Groucho Marx would say, everything is fine economically."

Another factor weighing on stocks, at least for the near-term: 'sell in May and go away' - - the seasonal closing out of positions, particularly winning positions, Bauer said, as key decision makers at institutional banks and investment / hedge funds head for the Hamptons (Long Island, N.Y. ), the south of France, and other destinations, for the summer.

For the second time in four months, the International Monetary Fund has cut its 2008 global growth forecast, citing the worst financial crisis in the United States since the Great Depression of the 1930s.

IMF now expects the global economy to grow 3.7% in 2008, down from its earlier forecast of 4.1% growth, Bloomberg News reported, citing an IMF document it obtained at the meeting of Southeast Asian deputy finance ministers and central bankers in Vietnam. The IMF also said there's a 25% chance global growth will drop below 3% in 2008 and 2009.

In January 2008, the IMF lowered its forecast for global economic growth this year to 4.1%, the lowest since 2003, from 4.4% predicted in October 2007. At that time the IMF said last year's increase in credit costs resulting from defaults on mortgages aimed at borrowers with poor credit histories was hurting the rest of the economy.

Groucho Marx once remarked that whenever things start to look really dark, remain calm, don't panic, and above all, turn on a light.

Given the barrage of financial stresses battering the credit and equity markets these days, consumers, economists and investors alike could use some of Groucho's levity, and some light. In this case the light may appear in the form of the Federal Housing Administration.

What's old is suddenly new

The Federal Housing Administration, the once-viewed-as-antiquated, irrelevant Great Depression-era government agency, is suddenly emerging as the centerpiece of government efforts to bolster the U.S. housing market, reported The Wall Street Journal (subscription required.)

The FHA has become the cheapest, and in many cases, the only alternative for borrowers who can make only a small down payment, and the agency is rapidly gaining market share.

With wholesale inflation running at a 12% annual rate, prices are raging out of control. But Fed Chair Ben Bernanke is wagering that the risk of economic contraction is greater than the damage from inflation. He might be thinking that it took 15 years to get us out of the Great Depression but only two years in the early 1980s of 19% Fed Funds rate to break inflationary expectations after a decade of the stagflationary 1970s.

In 2005, the Wall Street Journal reported that Ben Bernanke was a Great Depression "buff." This makes me think that he is trying to avoid making the mistakes that the Fed made in the 1930s. In so doing, he is spurring runaway inflation. For example, the price of gasoline is expected to rise to $4.00 a gallon this summer with help from $103-a-barrel oil. Back in January 2001, oil was at $24 a barrel -- it's increased at a nice 23% compound annual growth rate in the last seven years. Since oil is traded in dollars, Bernanke's interest rate cuts are spurring a weaker dollar, hence higher oil prices.

The Great Depression started in 1929 with a stock market crash. And it really didn't end until World War II -- which spurred enormous government spending to build a war arsenal. Bernanke believes that a major reason that the Great Depression lasted so long was that the Fed tightened credit, which cut off liquidity when it was needed most.

Clem Chambers, CEO of stocks/ investment web site ADVFN, argues in an article in Forbes.com that the best thing that could happen to the markets right now would be a quick stock market crash.

Chambers writes: "In many ways, the best thing that could happen now would be a quick crash. A lot of professionals are praying for a so called 'puke' because that would set a bottom for a recovery and signal that the worst is over. A short, sharp shock would be good for everyone. Recovery is better than sickening."

Chambers also notes that the market may very well be in the process of crashing right now, but until there's a period of relative calm or a massive drop, it's too soon to tell. Chambers added that if a crash does happen, it will occur in the next few weeks, and if it doesn't he sees a bear market for an extended period of time (It should also be noted that Chambers' other scenarios for the period ahead, 2008-2010, are a protracted period of volatility or a small/short bear market).