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Bailout could boost inflation, sink dollar

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"Maybe they're saying, 'I want to hold something real here,' " Mr. Kasriel says. The American economy is swimming in debt, he says, and the bailout plan will simply shift some of the worst debts from weakened banks to the largest balance sheet around – that of US taxpayers.

The day's huge surge in oil prices also stemmed from a technical factor. The expiration of a monthly crude oil contract added to price swings as traders rushed to cover their contract positions.

But markets are clearly grappling with the implications of the world’s largest financial industry needing a taxpayer rescue.

Recent government interventions are beginning to pile up, as Alex Patelis, a London-based economist at Merrill Lynch, pointed out in a report Sunday headlined, “As the US printing press starts.”

The biggest tab so far is the Treasury’s still-emerging plan to buy $700 billion in mortgage-related debt, but it goes beyond that. Among the other Treasury costs Mr. Patelis cites: An $85 billion loan to insurance giant AIG, $10 billion for purchases of mortgage bonds from Fannie Mae and Freddie Mac this month, $100 billion to fortify the Federal Reserve’s balance sheet, $50 billion to insure money market mutual funds.

In all these cases, it’s not clear that this is money that taxpayers will ultimately have to pay. Much of the money to buy debts, for example, should be recouped when those assets are later sold.

But suddenly the risk on the government’s balance sheets seems to be widening every week. It’s not surprising that investors are asking some questions about the soundness of the dollar.

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