The Fed buys securities from the banks - It used to be US Government debt but we are not picky anymore - for cash. The banks have cash on their hands so they loan it out to consumers at low, low rates. The consumers take the bait. They borrow on their home equity and rush out and buy a new home entertainment center. This employs lots of other consumers who unload the ships or transport the home entertainment centers or work in the stores that sell stuff.

We should just give monetary policy a few more months to work its magic.

Except that the news is not so good. From Reuters:

The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."

My reading of this is: Things will get worse for at least the next year and a half. Then they might get better if we are very good.

But now that the fine folks on Wall Street have been bailed out we really ought to be happy to wait for a few years. After all, these things do take time and we don't want to disturb the delicate balance of the markets.