Weekly Standard:

So how is Fed chairman Ben Bernanke going to get all that toothpaste back into the tube? The Fed has been cranking money out like water over Niagara Falls. The monetary base has increased by a trillion dollars in just the last six months. And he’s not done, furiously printing dollars (bank credits, really) and buying Treasuries in an attempt to flood the economy with dollars. When will it end? $3 trillion? $4 trillion? And then what? A functioning economy doesn’t need all that cash sloshing around. Is runaway inflation our next crisis?

(snip)

The Fed can put all the cash it wants or thinks it needs into the economy, but someday, maybe soon, maybe in a year or two, the economy will start growing again. People will stop hoarding dollars. Their 2004 Taurus will be looking a little old. Baby needs a new pair of shoes. Banks will start lending again to businesses and maybe even to home buyers. As money starts getting spent, all that money’s velocity starts increasing. Oops, there goes the price level. With so much money floating around, chasing too few goods, inflation is a-comin’. The Fed will have to start pulling all that extra money off the street and back into its vaults. And in just the right amount.

But how? Doing the opposite of what it is doing now. By raising interest rates. By sopping up dollars by not only selling Treasuries, but also selling all those mortgage-backed securities and other toxic stuff bought from Bear Stearns, AIG, Fannie and Freddie, and everyone else. By removing all the backstops it put in for the commercial paper and other markets to keep them functioning. But won’t that have the effect of slowing the economy? Sure will. This is a tightrope act. Getting all that toothpaste back into the tube will require the skills of a surgeon and the moxie of a middle linebacker, and someone deaf, dumb, and blind to congressional meddling. And worse, this is something that has never been done before.

My comment: "this is something that has never been done before" and will not be done correctly by these central economic planners either. There is no difference between Bernanke, Geithner, Summers and the Soviet appartchaks that thought they could control the Soviet economy. We will have inflation whether it turns into hyperinflation remains to be seen.

John Polomny
The Real Deal