Today's announcement by the Federal Reserve that it intends to pour another $1.15 trillion into the economy in the form of $300 billion in FOMC treasury purchases and $850 billion in mortgage-related debt drove the precious metals markets crazy this afternoon, as they experienced tremendous volitility and heavy volume after the announcement.

Beyond that, the announcement really had very little effect. The New York Stock Exchange experienced a mild rally, but not much else. The lack of significant reaction from most of the markets shows just how quickly we've become accustomed to throwing around the word “trillions” in news articles over the past year.

News articles on the subject of the latest deluge of cash sometimes bordered on the absurd. The Wall Street Journal quoted financial house UBS as commenting, “The U.S. is not explicitly targeting the money supply, like the Bank of England decided to do. It is an important distinction which we think should fail to hurt the dollar on a sustained basis.”

Not targeting the money supply explictly? What would be explicit enough…turning on printing presses to print the actual cash itself?

At some point, one has to ask…when does all this money turn into inflation? History tells us it can take 1-5 years for price inflation to follow monetary inflation, and it usually only shows up in certain segments of the economy. So, we can expect that this latest round will show up sometime between 2010 and 2014. Unfortunately, it will be hard to distinguish it from the other trillions added to the economy during the past nine months or so.

It's becoming clear that more money has been pumped into the economy than has actually been lost in the form of defaulted mortgages…so far. The Fed's willingness to throw huge sums of money around has shown remarkably little “positive” impact on the economy. This suggests to me that the ability of the Fed to “stimulate” the economy has definitely been overplayed. The markets simply aren't responding the way they previously had to much smaller stimulations over the past 10-15 years.

I think this suggests that the debt-based nature of fiat money is finally starting to show its bloat. Many people don't realize that fiat money is debt-based, that every new dollar created is distributed by creating a debt, usually on behalf of the U.S. government. Typically, the Fed “stimulates” the economy by creating more of it, while shunning anything that even hints at reducing money supply as much as possible, because such reductions tend to be recessionary. The mortgage crisis has led to significant deflationary pressures, which of course are what are driving the emotions of the markets and the business community as a whole these days. Yet, the overall effect of all the Fed's most vigorous stimulation hasn't even gotten the economy to get up off the couch and slouch into the kitchen for some junk food. Bloat indeed!

What is forgotten by most, however, is that all this stimulation, no matter how inept it is proving to be so far, ultimately leads to greater debt. Today, the national debt is more than $11 trillion. That's the same as 11 million times another million….11 million millions. It's a number so horribly large that the human mind literally can't conceive of it in terms of real things. Even the numerical representation is mind-bogglingly long…$11,000,000,000,000. The only thing we know for sure about it is that it's a debt that we can reasonably believe will never be paid off. That's actually a depressing thought, because the only way in a fiat money supply to grow the economy is to inflate it further, thereby creating even more debt. We are now long past the point of no return.

Even more importantly, UBS (and many other people apparently) are forgetting or else in denial that all that money inventually does lead to inflation, quite possibly hyperinflation at the rate they're going. The endgame approaches.