They are printing money out of thin air. It is highly inflationary. The collapse in the stock market, and the collapse in home prices, is no more deflationary than it was inflationary when they were rising. That is asset deflation and inflation, and does not impact overall monetary inflation, which is still approaching hyperinflationary levels.

The following is a very good explanation of the overall effect that all these Fed programs have on the money supply. The bottom line is it doesn't matter what they call it-- TAF, emergency lending, nationalization, bailout, supplementary lending-- they are increasing the money supply. In one fell swoop, today, the Fed increased the money supply by $630 billion, despite all the hysteria over not passing this $700 billion bailout.

This is John Williams' explanation from Shadow Stats:

Inflation Implications. The two most frequent questions I have been getting from readers over the last several days: (1) How do the government’s actions impact money supply? (2) Does the current circumstance accelerate my hyperinflation outlook?

Money Supply Boosts. As discussed in the prior Alert (September 17th), the Fed and the Treasury created new money to handle the AIG circumstance. Whether a check is written by the Treasury or funded by the Fed, the new cash supplied to AIG likely will go initially into a demand deposit, a component of M1, and initially enjoy the multiplicative effect of the fractional reserve system, adding directly to broad money growth.

Separately, a bank with an impaired balance sheet also has an impaired ability to lend money. To the extent the $700 billion being designated to buy illiquid assets from financial institutions may help to stabilizebalance sheets, aided banks presumably will resume lending money in a more-normal fashion. Freeing up lending is Treasury Secretary Paulson’s expressed reason for putting forth the finance package, and the renewed bank lending will expand money growth in a very traditional manner.

Hyperinflation Outlook Remains. In saving the system, the cost to the American public from this effort — aside from rapidly expanding federal debt — is inflation. My outlook for double-digit inflation, as reported by the government, remains in place for early 2009. The broad timeframe of 2010 to 2018 suggested for the hyperinflation discussed in the April 8th Special Report, certainly has not been pushed back in time by current events, but the final shape of the systemic bailout still is fluid. The more the government spends, the sooner the hyperinflation is likely to hit.

Key to the timing of the hyperinflation remains the U.S. dollar and the ongoing willingness of foreign institutions to hold it and dollar-denominated assets. At such time as massive dollar selling kicks in and dumping of dollar-denominated assets starts to overwhelm the Fed, the hyperinflation timing would begin to firm and move closer in time.

H