If you read past the pin factory in Adam Smith's WEALTH OF NATIONS, he ultimately says that the business class is the least qualified to run the government because they will ultimately tip all of the rules to their own profit. Sounds familiar.

This is along the lines I was thinking. The government is "printing" the extra money needed for these banks. Through this additional injection of money into the system I'd expect the dollar to weaken and inflation to continue to increase, unless demand is somehow curtailed at the same rate that money is being created.

It would be helpful to talk in terms most people can understand. So my question is: What does this move do to the purchasing power of an American family with about the median income over the next few months to few years?

...hyperinflationary depression.

Yeah, that's what I think. That's two catastrophes at the same time. But you're leaving out one more: war.

You have to wonder why Japan and other nations have lent us so much money, already. There has to be a hidden political element to this.

In the case of Japan, maybe it's that we have our mitts on the oil spigot, and so they have to settle for a crappy return and ultimately take a currency loss.

Of certain oil producing nations, we protect their rulers and they buy our Treasuries, knowing that they must never, ever cash them in.

Hyperinflationary depression...exactly. John Williams called it back in April and so far it looks like he's been right on the money: Shadow Government Statistics HYPERINFLATION SPECIAL REPORT

Dave, One also needs to consider unfunded liabilities when looking at a country. Americans have 5 times the amount of federal government unfunded liabilities than we have in federal government debts. Financial models that do not consider the growth-stunting effects of Peak Oil already show huge financial problems developing due to an aging population and unfunded entitlements. Former US Comptroller David Walker likens this problem to a fiscal cancer.

I laugh at McCain and Obama trying hard to get elected because either one of them is going to see this problem grow much larger on their watch as the Baby Boomers start to retire. Whoever gets elected is therefore going to be unpopular.

The size of the debt is a large problem but there's one that compounds that problem. The largest problem that NOBODY talks about is HOW WE FINANCE THE NATIONAL DEBT. The average maturity of the national debt is about three years. That means we have to repay half of the debt every three years by refinancing it with new debt. (Balance transferring from one credit card to another.)

If this was like the 1970's when the national debt was financed with 30 year bonds there wouldn't be so much need to worry. Just like if your home has a 30-year fixed rate you don't care how high rates go, you don't need to refinance. But if you were required to refinance your home every three years you'd be in deep trouble.

The current debt is almost 10 trillion dollars. (This doesn't include unfunded liabilities which is another HUGE problem I won't go into.) If the average interest rate paid is 3% the annual interest cost is $300 billion. If short term rates rise to 9%, then three years later (after refinancing half the debt) the average interest rate will be 6% therefore doubling the interest paid to $600 billion dollars per year. That's the MOST IMMEDIATE FED GOV FINANCIAL EMERGENCY IMHO.