The Federal Reserve, in what can only be described as an extremely rare weekend action, boldly moved Sunday night to provide lower the discount rate from 3.5% to 3.25%, along with additional actions to provide cash to Wall Street investment houses that may be financially squeezed. The unique action intended to prevent a spreading credit crisis from crushing the American economy.

The rate cut, effective immediately, was paired with the creation of a new lending facility for larger investment banks to secure short-term loans. The facility will be available Monday morning, in advance of the start of the normal business day.

The new bank lending facility will be a cousin to the FED's emergency lending discount window used by banks. It is structured to provide investment banks with a source of short-term cash on a regular basis if they have need of it.

The facility will be in operation for a minimum of six months and "may be extended as conditions warrant," the Chairman said. The interest rate will initially be 3.25% and banks can provide a range of collateral, including investment-grade mortgage backed securities may be used to back the overnight loans.

"These steps will provide financial institutions with greater assurance of access to funds," said  Federal Reserve Chairman Ben Bernanke speaking financial reporters in a brief conference call Sunday.

The Federal Reserve also moved to approve the JP Morgan Chase & Co. purchase of rival Bear Stearns for $236.2 million, an amazing move that is a bargain for Morgan, but averts the collapse of one of Wall Street's venerable large institutions. It was just Friday that the FED raced to provide emergency financing to cash-strapped Bear Stearns through JP Morgan.

Earlier last week, the FED announced other unconventional steps to relax credit markets to prevent them from moving from credit crunch to credit freeze.

The discount rate cut Sunday does not affect consumers directly, and will not impact credit card, mortgage or other credit interest rates for the public. This only applies to short-term loans, usually overnight loans, taken by banks from the Federal Reserve.

These extraordinary moves, combined with the rare weekend action indicate that the FED sees troubled times ahead, with potential bank closures in the immediate future, and a number of institutions very close to Bear Stearns financial condition.

On January 4th, we predicted that banks were heading for potential collapse, and that the economic condition of the Nation was poised for a potential depression.

The Federal Reserve published its Z1 report on March 6th, showing alarming volumes of deficits, markedly increased from 2005 and 2006.  One of the key numbers we've been particularly concerned about is business lending. In 2007, banks made $627 Billion in business loans, but for the year there was also a $216 Billion deficit - effectively more than one-third of the lending made showing serious problems or defaulting.

Other FED reports show varying levels of weakness across the Nation, in almost every sector except tourism. The latter sector boosted mostly in key cities like NY and LA from foreign visitors coming here to take advantage of the discounted shopping opportunities as their money is worth much more here than at home. Unfortunately, the discounts have not had a significant impact on retail sales.

With the U.S. Dollar at an all time low, and oil at all time highs, the national economy is now on the brink of depression we predicted in January.  Do not be mistaken, the Bear Stearns crisis was the result of a quiet run on that investment banking house, as customers pulled their money on rumors of an impending liquidity crisis.

Chairman Bernanke's move over the weekend is a brilliant action to avert a full-scale collapse of financial institutions.

The next couple of weeks will be critical, and there will be many sleepless nights at the FED and the Treasury.