what to do indeed! governments shouldnt have allowed the reckless lending that went on in the banking sector in the run-up to the current crisis. but neither should we all have borrowed money that we knew we could never repay. it was all an illusion, as I wrote in the Financial Times some two years ago, before the current crisis began (http://www.ft.com/cms/s/0/93973cae-5a7f-11dc-9bcd-0000779fd2ac.html). however, if governments hadn't then bailed out the banks last year, we would have entered a long depression, as a modern economy cannot exist without a working financial system. this money will have to be paid back over time, and so we will all have less money to spend on other things. therefore, i do not particularly worry about inflation at the moment, as i think our problem is more a lack of demand rather than a lack of supply. there is plenty of capacity in manufacturing (and in financial services), therefore i worry more about deflation cf Japan since 1990. i also worry that the financial crisis is not yet fully resolved - the Fed seems to think the issue is liquidity, but i fear it is more about solvency - loans made to the consumer and corporate sectors that will never get paid pack, and which will eventually have to be written off.