Interest rates on 30-year-fixed mortgages have dropped this week to their lowest levels in about 37 years.

The recent decline occurred as the Federal Reserve pledged to pour money into the lagging mortgage market in an attempt to revive the broken U.S. housing market.

Freddie Mac reported that the average interest rate on a 30-year fixed-rate mortgages has dropped down to 5.19 percent from 5.47 percent last week. This rate is now the lowest seen since April of 1971.

Interest rates on 15-year fixed-rate mortgages also dropped this week. They are now at an average of 4.92 percent, a decline from 5.2 percent seen last week.

Mortgage rates began immediately falling after the Fed kicked off a new program in late November to try to assist the housing market, by purchasing up to $600 billion of mortgage-related securities and other debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

We’ll have to see how this all shakes out in the housing market, but one group is quickly taking advantage of the ultra-low rates. Homeowners from around the country are currently scrambling to refinance their mortgages.

Mortgage brokers from across the country are reporting a huge surge of phone calls from borrowers who are now trying to take advantage of the Federal Reserve’s interest rate cut this week.

Over the past four months, as frightened investors all around the world fled from risk, the dollar recouped over two years worth of losses against a broad group of international currencies.

Since the beginning of August, the U.S. dollar has strengthened about 23% against the Euro, 34% against the British pound, and even greater returns against some currencies in the world’s developing countries.

As a reminder, the U.S. dollar has been on a decline since 2002. The recent upswing is encouraging but still has way to go to recover all its losses. But the fact remains, it still represents a significant turning point for a currency whose years of weakness had turned it into a source of amusement and embarrassment for Americans.

The weak dollar has had a significant impact on Americans as the cost of imported good rose and traveling overseas was made almost impossible except for the ultra rich..

But a strange thing happened as the world economy sufered. The increasingly wide scope of the financial crisis has also assisted the dollar’s rebound. It quickly became apparent that the U.S. is far from the only country with economic woes and struggling banks.

But for currency investors, the resurgence of the dollar may be a huge challenge. Some experts feel the dollar’s rebound may be short-lived, due to the  enormous challenges facing the U.S. economy. But then there are others who say it’s likely to hold its gains far into 2009 as economies around the world continue to fight global slowdown.

But for the moment, it’s a good sign for U.S. consumers. The stronger dollar is a big hit for Americans traveling overseas. They have tired of seeing their hard earned dollars buy less and less on each trip.

But for some companies, it is far less desirable. A stronger dollar does mean that the goods and services of American exporters are more expensive for foreign buyers. The result is it reduces their competitiveness. Another factor that is a negative for American multinational companies, their overseas earnings will now be worth much less after being exchanged back into U.S. dollars, hurting both their sales and profits.

There are storm clouds on the horizon. Once the U.S. economy begins to recover, the huge injections of cash by the Federal Reserve could cause rampant inflation. This is bad news for the dollar because it will erode a currency’s worth.

Some experts say the Fed will cut back liquidity before that happens, by raising interest rates or through other measures. For now, the Fed is focusing on the bigger problem – trying to prevent deflation, a vicious cycle of contracting credit and falling prices.

In the back of their minds, investors also worry about another scenario, where foreign investors lose confidence and scale back or stop buying U.S. assets. That would send the dollar plunging and interest rates soaring.

For investors, the dollar’s latest surge and murky future present a number of choices. For example, if you believe that, in the long run, the dollar is likely to weaken, one strategy to consider is owning stocks or bonds denominated in other currencies. Then if the dollar does lose ground, the returns will be worth more when converted back into dollars.

It’s all a gamble, so bring out your crystal ball and see what it tells you.

The government recently asserted itself again with the Treasury, the Federal Reserve and the FDIC announced a second round bailout of Citigroup (Citi) that signaled a restart and a major change of direction for the Troubled Asset Relief Program (TARP).

Instead of the Treasury solely buying troubled assets, as was considered earlier, the term sheet gives the government much greater control over management of the securities with loans being guaranteed, executive compensation, and dividend payments, and provides for substantial up-front deductibles from Citi in the event of further loan losses.

By including all three government entities in this new TARP process, it appears to be beneficial and this model should be a more workable one for lifting risk out of other faltering banks.

The FDIC has experience with troubled loan management, while the Fed has basically unlimited resources to guarantee asset pools. If the government can remove a net of more than $250 billion in risk off the bank’s balance sheet for a lower upfront cost of $20 billion, then if needed they could lift more than $4 trillion in risk out of the banking system with the $350 billion second tranche in the TARP.

The move was positively received by the distressed U.S. equity and credit markets. Have we hit rock bottom and move up from here? Of course, nobody knows for sure, but many seem encouraged by the new policy actions and see both the incumbent as well as the incoming Administration as demonstrating renewed determination to do whatever it takes to resolve this financial crisis and limit the damage to the economy.

As we enter this holiday season, additional bad news on the economy will likely outweigh the good news for a long while. The current recession will be difficult and trying, espcially during a holiday period that should be filled with happy times.

The financial markets will likely remain quite volatile and major swings in both directions will not be uncommon. Although there are lots of things that are broken, we can clearly see many policy actions are already underway to help fix them.

The question that’s on everybody’s mind is: where does all this bailout money come from? How deep are the financial pockets of the government?

The government has announced billions and billions in bailout money and economic stimulus packages. The primary goal is to shore up failing banks, create equity to regenerate lending, and kick-start the struggling economy.

What do my readers think? Are we sacrificing our long-term future with quick, band-aid and politically driven solutions?

Just this week, the Federal Reserve and the Treasury Department announced the latest bailout figure – about an $800 billion package.

Does anybody else wonder how long can this crazy spending last and will us taxpayers be weighted down in debt for decades to come?

Let’s start with where does all this bailout money come from. The majority of the cash has been put up by various lenders who buy U.S. Treasury Department securities, such as bonds, notes and short-term bills.

Most economists estimates that international investor s have purchased as high as three-fourths of these securities. Many of them have flocked to relatively safe U.S. investments amongst the glut of global uncertainty.

In addition, a portion of the spending has been financed by securities issued by various government agencies such as Fannie Mae and Freddie Mac. This may surprise many people because these two agencies are a big part of our crippled real estate market.