What it means to say that the Fed's balance sheet assets will increase from $1.9 trillion to $4.5 trillion must be understood in the proper context, that being, that the neither the Fed nor the government has anything close to $4.5 trillion with which to purchase any assets. The reader will recall that the Treasury has been conducting auctions on a regular basis whereby it auctions off U.S. debt to whoever will buy it. And, just recently, Secretary of State Clinton made a special trip to China to assure them that the U.S. will make good on it's debts held by foreign entities and encourage them, particularly the Chinese, to continue to purchase U.S. debt. Considering that the U.S. government is in fact bankrupt, in order to embark on this bold new policy endeavor, the Fed will print $1 trillion dollars now, and certainly more later, with which it intends to purchase said “toxic assets.”

Through means of vastly increasing the amount of currency in circulation by printing it literally out of thin air, the dollar must necessarily become grossly devalued, its purchasing power will be greatly reduced and the unfortunate result will be hyperinflation of the kind mentioned in the examples above.

If allowed to continue, this policy will ultimately result in the total collapse of our monetary system, likely followed by a collapse of government. What will follow next is any body's guess. It is most unfortunate that those who currently wield political power so stubbornly cling to the same failed theories of interventionism that they predecessors also clung to. Indeed, at present how many times have we been told by those in Washington that because the current financial situation has deteriorated so rapidly that it is necessary to “change” capitalism in order to “save” it.

The fact of the matter is that we are in this current financial mess because they have already “changed” it. What was changed from the first half of the 20^th century was the almost universal adoption of a policy of active interventionism by western industrialized governments, based upon the misguided and now disproven theories of Keynes. Interventionism, it was posed, was to be neither true capitalism nor true totalitarianism, but rather, “as a third solution of the problem of society's economic organization, stands midway between the other two systems, and while retaining the advantages of both, avoids the disadvantages inherent in each.”³ In fact, all that interventionist theory has really accomplished is the mass deception free peoples, and the unsubstantiated and wholly unrealistic promises of “lasting prosperity” or “permanent” prosperity. An appeal to common sense would instantly reveal the impossibility of a permanently prosperous economy as the interventionists would define it.

In a very general sense, interventionism means government meddling or coercion upon the various aspects of the economy in order to effect specifically desired results. An example of a desired result is the buzz-word, “total employment,” sought by the governments of almost all industrialized nations whereby the government over-regulates and thereby influences various industries by a variety of means to “stimulate” the economy along a path of what it hopes to be a permanent state of growth, production and consumption. Yet what is missed by so many supposedly brilliant economic minds is the inescapable fact that wherever government intervenes, whether by passing mandatory “living wage” laws, price controls, or whatever, the immediate effect is to artificially raise the costs of production – and therefore raising the costs of the goods produced for consumption - above what the unhampered market (you and I) would wish to pay. If the price of the good becomes too high and consumers buy less of it, the costs of the producer increase further and ultimately end in higher unemployment. Thus, the means employed are entirely self-defeating relative to the intended goal. The law of unintended consequences thus manifests itself – what the interventionist policy sought was higher employment, but what resulted was higher unemployment.

Typically this result prompts even further interventionism on the part of the government as it seeks to correct the unintended consequence of the original policy. For example, in the case of price controls, the next move may be to decree that as the cost of the good to too high to attract consumers, then the price of the good will be fixed even lower. This still leaves high costs for the producer, who will be forced to either go out of business (because his revenues do not exceed his costs) or to seek redress from the government. Again, the typical response from government would likely be to fix the costs of those commodities employed in the production of the good to be produced. However, it becomes immediately apparent that the size and scope of the original policy has just been expanded instantly and exponentially, for in fixing the price of these commodities the government must continue fixing prices of others and mandating more and more controls over many aspects of the overall economy. Thus, interventionism, if not abandoned when the law of unintended consequences becomes apparent, must always lead to increased bureaucratic control incompatible with free market capitalism.

A worse form of interventionism, however, is the one that has been employed by the Federal Reserve since its creation in 1913: the policies of so-called “easy money.” The name is an irony in and of itself, for in the end there is nothing “easy” for those who suffer the results of massive credit expansion (creating money out of thin air), deficit spending, and inflationary monetary policy. Indeed, the fundamental underlying cause of the current fiscal crisis, and the thing that has enabled all of the other factors to come together to form this perfect economic storm that threatens to bring this nation and possibly the world to its knees is these misguided interventionist policies of massive credit expansion and inflation. And now, as the nation waits for results of an ill planned and mostly ineffective “stimulus” bill to be manifested, the Fed has been loaning money to banks, buying debt and printing money behind the scenes, almost unnoticed. What they do now, they do in relative obscurity, but the effects of their actions will certainly be felt in the years to come. With trillions upon trillions of dollars being newly created, printed, and injected into the financial system the short term effect may well be a temporary recovery. The effects of the massive inflation that will result have yet to be accurately estimated, as nothing on this scale has ever been attempted. The closest situation to ours was Weimar Germany, and the results, as we know, were not good. Inflation is bad policy to be sure. Just how bad it will ultimately be, and how devastating effects will be remain to be seen.