WASHINGTON - What's left in Uncle Sam's economic tool kit?

The commitment of $700 billion didn't impress markets here and around the world. Neither did fresh interest rate cuts. Stocks plunged yet again Thursday.

The government still has some unused options - like buying up foreclosed properties and making direct loans to homeowners - that might ease the credit and housing crises and brighten the economic outlook.

But the options are dwindling and generally involve partly taking over private companies, an idea that is anathema to economic conservatives and others in America.

Even as policymakers counsel patience in waiting for the medicine already prescribed to kick in fully, they are searching hard for other approaches.

"So long as financial conditions warrant, we will continue to look for ways to reduce funding pressures in key markets," says Federal Reserve Chairman Ben Bernanke.

The Fed's primary tools are lowering interest rates and flooding the system with money. It already has done plenty of both.

It could lower interest rates further - and probably will if the downturn continues. But after this week's half-percentage-point cut, coordinated with other nations' central banks, there isn't a whole lot lower for the U.S. to go.

Since September 2007, the Federal Reserve has pushed its benchmark short-term rate down to 1.5 percent from 5.25 percent.

The Fed presided over by Alan Greenspan kept interest rates at 1 percent for a full year earlier in the decade - and many economists suggest that was one of the root causes of the housing bubble, making it too easy for people to take out loans they couldn't afford.

And besides, in Japan, holding rates near zero for years did little to help a deeply troubled economy.

The Fed could inject more money. But it already has flooded the financial system with hundreds of billions of dollars.

And bold action by the central bank can have unintended consequences, signaling to investors that things may be worse than they thought, contributing to the downward spiral in markets.

Apart from the Fed, Congress last week enacted a bailout package backed by up to $700 billion in taxpayer money, on top of a $300 billion housing package passed in the summer. Treasury Secretary Henry Paulson says it will be weeks before the government starts using the bailout money to buy up soured mortgage-based securities.

The Treasury is now considering using some of the money to take part-ownership in certain U.S. banks. But that could put the government in the uncomfortable position of regulating banks in which it is also an investor.

Many economists say that actions taken so far do little to address what is at the heart of the spreading financial contagion: falling housing prices and rising foreclosures.

Former White House economist Glenn Hubbard proposes that the government refinance every U.S. mortgage held by Fannie Mae and Freddie Mac into 30-year loans fixed at 5.25 percent.

Economist Rob Shapiro, of NDN, a think tank formerly known as the New Democratic Network, said that so far the Fed is "putting as many fingers as it can in the dike" without stemming the flood. He said the government should consider direct government loans to homeowners facing foreclosure.

"There are a range of proposals out there. The focus of the administration and Congress on Wall Street to the exclusion of homeowners is very economically and politically myopic," said Shapiro, a former economic adviser to President Clinton.

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In an effort to show that governments around the world were focusing intently on ways to resolve the crisis, the administration announced that President Bush would meet with finance officials from the Group of Seven major industrial countries at the White House on Saturday.

"The president will have the opportunity to hear directly from the finance ministers about how the financial crisis is affecting their respective economies and the steps they are taking to deal with these challenges both individually and collectively," presidential press secretary Dana Perino told reporters.

Perino said Bush would stress "the importance of nations working in a coordinated way to address the crisis while respecting the different conditions in each economy."

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Originally published by Tom Raum Associated Press .

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