The US economy is even worse shape than expected if the latest figures are anything to go by.

Consumer credit, or borrowing by consumers, has fallen to its lowest level on record and with the middle class not spending, it signals the US economy is going to hell in hand basket. What it signals is that fear is driving this downward trend. Denied credit by the banks, either losing their jobs or in danger of it, people are just terrified of spending anymore.

This explains why the Fed came out now with its paper chase, buying commercial paper. It's a radical move, and its significance should not be under-estimated.

What is commercial paper? Basically, it's a cheap source of cash for companies to meet short-term financial needs that's cheaper than tapping a line of credit from a bank. The problem for the commercial paper market is that fear. Investors have pulled out which means there is less commercial paper available, which in turn means that companies wanting to raise cash face higher cost short-term credit from banks.

The Fed has in effect become a commercial paper bank by setting up a special purpose vehicle that would issue the commercial paper at special purpose vehicle at the targeted federal funds rate.

Had the Fed not acted, it might have been disastrous, and we would have seen company after company going under, and more people thrown out of work.

Unfortunately, there is not much the Fed can do to help consumers.