HOW BAD COULD THE ECONOMY GET?

Pretty bad, think over 30 years ago. I remember that time and it was decidedly unpleasant.

Fed May Cut Rate to Below Inflation, Risking New Asset Bubbles
By Craig Torres and Simon Kennedy

Jan. 29 (Bloomberg) -- The Federal Reserve may push interest rates below the pace of inflation this year to avert the first simultaneous decline in U.S. household wealth and income since 1974.

Real disposable income grew at a 2.1 percent annual pace in November, the slowest in 16 months, as higher food and energy costs eroded paychecks. Home prices in 20 U.S. metropolitan areas fell 6.1 percent in October from a year earlier, the most in at least six years. The Standard & Poor's 500 Index is down 15 percent from its record on Oct. 11.

The last time household real estate, stocks and real incomes all declined in a quarter was during the 1974 recession, according to calculations by Macroeconomic Advisers LLC.

The Fed incorporates wealth effects, or the impact of changes in household assets on spending, in its economic model. Americans cut spending by about 5 cents for every $1 of decline in their home values or stock portfolios, economists estimate.