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THE LAYOFFS hitting 2,200 automobile industry workers in Western New York this week are part of a darkening picture in the nation's auto industry. And the slowdown in the auto industry in turn reflects a sickly economy nationwide.

Unemployment reached a three-year high in November -- with more than 265,000 jobs lost last month alone. The housing industry is flat on its back. America's industrial production declined in October. Christmas sales look anemic.

Recession is here, and the task now is to figure out how to minimize the damage. A severe recession would really hurt the nation, widening federal and state budget deficits as well as hurting industries and individuals.

Recession increases the need for government services at the same time it cuts into tax revenues to pay for those services.

Washington went on an irresponsible credit-card binge during the economic boom of the 1980s. Since it didn't end its deficits, much less build surpluses, in the good times, there could be drastic penalties from the deepening debt in the bad times.

Weapons designed to soften the onrushing recession are limited. With the huge deficits, options that require more federal spending are cramped.

One promising possibility that is left is decisively lowering interest rates to stimulate business. The nation's new status as a debtor country makes even that harder to do than when the nation faced past recesssions, but it should be tried.

The Federal Reserve Board has taken some gentle steps to ease money in recent months. It reduced, for example, the rate of interest banks charge each other for borrowed funds four times since July.

But the Fed should go further. It should trim the discount rate, the interest charged by the Fed to member banks for borrowing money from it. The rate has remained at 7 percent since early 1989.

The task of easing interest rates isn't as clear and simple as it once was. Because the huge federal debt must be financed, and many of the creditors live in Germany and Japan, the Fed cannot trim interest rates so much that the creditors find purchases of Treasury bills, notes and bonds unattractive. Washington cannot act as though it were alone in the world.

Were foreigners to stop buying these securities, interest charges on them would soar, adding to the cost of the debt for the taxpayers and putting upward pressure on all interest rates and inflation.

So Washington is hampered. The Fed can't act recklessly. It has to strive for balance between domestic and international considerations as they apply to interest rates.

With that said, however, the time has come for the Fed to become more aggressive. Lowering the discount and federal funds rates is necessary to energize investment and consumer spending in the marketplace -- and eventually reverse the grim current downturn toward economic stagnation.

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