If so, does that mean the United States could go bankrupt?

The question is becoming urgent, because Tuesday the Fed cut the federal funds rate from an extraordinarily low 1 percent to an unprecedented 0.25 percent, with a prospect of going down to zero.

But even such unheard-of steps might not, on recent experience, revive the animal spirits of entrepreneurs and get bankers lending again. Fear still rules the markets.

Ben Bernanke, the chairman of the Federal Reserve Board, is trying desperately to keep the good ship capitalism afloat and is deploying heroic, innovative and risky measures to do so.

The costs are becoming astronomic. Over the course of the last year the Fed's balance sheet has tripled to $2.2 trillion. Like Atlas of the Greek myths, who bore the world pressed down on his shoulders, the Fed is currently holding up the U.S. financial system.

It has launched new credit facilities, accepted dubious collateral for loans to banks, arranged currency swaps and generally done things it has never done before in its 95-year history. Under the Term Auction Facility, it has issued $448 billion in liquidity to banks against various securities including Treasury bonds, municipal bonds, AAA securities and so on.

Under the Term Securities Lending Facility it has issued $185 billion in Treasury securities to guarantee inter-bank loans, backed by vaguely defined collateral that includes the now-notorious "mortgage-backed securities."

Since Oct. 29, when it decided to intervene to unblock the commercial paper market, on which many U.S. corporations depend for operating funds, it has issued $349 billion in net liquidity. Under the Commercial Paper Funding Facility it has issued $309 billion and a further $41 billion under the Asset-backed Commercial Paper Money Market Mutual Fund Liquidity Facility.

The Fed's balance sheet also shows another $628 billion in assets, much of it in the form of currency swaps, like the special agreement on Oct. 29 to extend $120 billion to Mexico, Singapore, Brazil and South Korea. This followed the $180 billion swap agreement the previous month with the Bank of England and the Japanese, the European, the Canadian and the Swiss central banks.

And all this is being done under a veil of secrecy. Citing banking confidentiality, it has rejected a Freedom of Information act request from Bloomberg Television to detail precisely the kinds of collateral it is now accepting and the credit it is issuing.

It is also allowing banks to turn a neat arbitraging profit on the funds it lends out to commercial banks at an interest rate of 0.49 percent. The banks then deposit these funds back with the Fed as reserves, on which they receive 1 percent interest.

In theory, the Fed's ability to issue credit and supply funds is limitless; they can simply continue to print money or extend guarantees, and they will be backed up by the full faith and credit of the United States.

In practice, there will come a limit when the markets, foreign or domestic, start questioning the value of that credit and demand much higher interest rates to hold dollars that are visibly declining in value. That has not happened yet, and given the need of the rest of the world's central banks for the U.S. economy to remain afloat, it may never do so.

But we are getting into risky and uncharted territory. This expansion of the Fed's balance sheet is but a fraction of the overall exposure. The Fed has said it is prepared to put as much as $2.4 trillion into the commercial paper market (the $349 billion listed above on the balance sheet is the current net position).

And at the end of the day, the Fed also stands behind the $1.55 trillion issued by the Federal Deposit Insurance Corporation, and the $950 billion by the Treasury and the $300 billion by the Federal Housing Administration and the $200 billion that has been pledged to Fannie Mae and Freddie Mac.

Altogether, more than $7 trillion (or about the wealth that the entire U.S. economy produces in six months) has been committed to the financial crisis by the U.S. government and its agencies. And so far, it has probably stopped a banking collapse, but it can hardly be said to have saved the system.

Currently shrinking at an annual rate of more than 4 percent, the economy is sliding down the slope from recession toward depression. Consumers are on strike. The housing market continues to sink, with new housing starts falling another 19 percent in November. And the world is following the United States down this grim slope, with China reporting drops in exports last week. And now this week China reports that its output of electricity, a reliable indicator of economic activity, fell 9.6 percent in November.

The measures currently being taken by the Fed are historic. It never did anything like this during the Great Depression, and the only comparison is with the emergency measures it took to finance World War II.

But we are only in the initial stages of this recession, and already the federal debt is heading toward 80 percent of GDP. Back in 1980, it was just over 30 percent of GDP. The last time it was as high as this was the aftermath of World War II, when the debt peaked at 120 percent of GDP.

Forget about the war on terror; for the Fed, this is now the war to save the economy.

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