We are in the midst of a great economic experiment designed to tell us just will happen if we replay the Great Depression without the major monetary errors that occurred at that time.

The reader may recall that the Great Depression began with the collapse of highly leveraged financial markets. The collapse brought on bank failures and a dramatic decrease in the supply of money. As less cash was available spending and investment collapsed.

This past fall saw the collapse of highly leveraged financial markets but we have intervened vigorously to make sure that no bank - well maybe one or two banks - will fail. Instead we have bought up their bad loans and given them cash.

But as far as the economy is concerned this cash might as well have been shot into space. Credit is not getting any easier and the economy still limps along.

Banks are holding on to the money. They feel safer with cash. When people hold money the number of transactions financed by the average dollar goes down. Money moves about more slowly or, in Wonkspeak: Velocity drops.

Monetary policy seems to be failing so the Fed pushes more money into the economy and the banks hold on to it. Financiers are scared and they cling to the dollar like a security blanket.

But what happens if they suddenly convince themselves that we are on the brink of inflation? I think that they try to get rid of their dollars like hot potatoes. I can see that this gives us a decline in the value of the dollar vis a vis other currencies.

I don't know what happens next. We would import less and probably be forced to use less oil. Would we get inflation? Not so likely with our current high unemployment but . . .

Help me out here people.