If Warren Buffett says the US is in recession, does that make it so

“So…if the economy is officially in a tail spin, why is the Fed lowering interest rates again?”

Bernanke is trying to save the US economy by saving borrowers from foreclosure. By lowering rates, he hopes home owners will go to their lenders to refinance their Adjustable Rate Mortgages (ARMs) while rates are low instead of being foreclosed on or sending “jingle mail”.

“Well, if there is a problem (seems like there is) what are some solutions?”

Let the credit expansion contract and let house prices drop to affordable levels. Let sub-prime borrowers foreclose, file bankruptcy, do whatever they can to fix the borrower’s, lender’s, and fed’s credit expansion mistake (housing bubble). Learn the lesson and move on, or not.

“What stopped recessions, historically? Or improved the economy?”

The Federal Reserve has a lot of influence over the business cycle. It starts a bubble by expanding credit, then borrowing / spending reaches a critical point (irrational exuberance) and finally the collapse. During the recession phase, a lender of last resort steps in to stabilize the economy so that the central lending institutions or other credit manipulators can continue perpetuating the game.