Nothing particularly remarkable in market news yesterday. The Dow fell 59 points. Oil slipped $2.50…to close below $40 again. The euro climbed back to the $1.39 level.

Caterpillar said it was cutting back executive pay. Corporations have been embarrassed by how much they paid their managers. They paid the top people millions of dollars; you'd think, if they were getting that kind of money, they'd at least look where they were going. Instead, they drove the businesses right into a ditch.

The whole auto industry seems to have hit a telephone pole. GM and Ford saw their debt downgraded again. And Toyota forecasts its first operating loss in 71 years.

We're coming close to the end of a remarkable year. And the wonders keep coming…

Last Friday, the Fed said it would make low cost loans to anyone who would help get consumer credit pumped up again. "This includes hedge funds," explained the report in the Financial Times, "which have never been able to borrow from the US central bank before."

Isn't that nice, dear reader? The helpful people at the Fed are going to provide money so that hedge funds can speculate on consumer debt. Then, the Fed will have a new kind of "asset" on its books - a loan to a hedge fund. From the date of its founding in 1913 until just six months ago the Fed kept little more than U.S. Treasury debt in its vault. Everything else was considered too risky for America's central bank.

But everything has changed in the last half year. The banks…the capitalists…and Wall Street have all been humbled. Now, politicians are in the driver's seat - in Detroit…in Lower Manhattan…and all through the economy. And now the Fed has $1.5 trillion worth of the kind of "assets" that got the financial industry into trouble in the first place.

Want money? Ask the hacks in Washington! Get in line!

Need to decide what kind of car to build? Ask a Senator or a Congressman?

Need to figure out if you should make a loan…or not make a loan…what business should be saved and which one should be left to die? There's some bureaucrat at the U.S. Treasury who will help make the decision.

At long last, the dream of the bankers who set up the Fed has been realized. If you want to control a society, get control of its money. Everybody needs money. Everybody wants money. And they'll have to come to you to get it.

In a gold-backed currency system, people have to respect the golden rule: he has the gold makes the rules. That's why the Roosevelt Administration confiscated gold in the '30s; it wanted to make a lot of new rules.

But gold is limited…and hard to control. In political matters, it is uncooperative. Say you want to prop up a failing industry…or buy off a pressure group…or pay off friends? Where do you get the money? You only have so much gold…and you don't want to waste it. So you tend to be careful. That's why the feds turned to the kind of money you get from trees. Paper money is much more, shall we say, pliable… It is a go-along, get-along kind of money. It's ready to pick up the tab for any party, no matter how outrageous…and ready to go along with any scheme…no matter how absurd.

And today, we have just the sort of situation for which paper money was invented. Absurd and outrageous. The feds want to hand out money; they need some cheap money to hand out. And since everyone needs money - in fact, at this stage of the crisis they are desperate for it - they're ready to go along with anything the feds want.

This line of thinking is continued…below…

*** George W. Bush said last week that he had to kill capitalism to save it:

"We abandoned free market principles to save the free market system," he is quoted as saying.

Let's see, how does that work…perhaps you could try a little hanky pank with your neighbor's wife in order to save the sanctity of your marriage? Or rob a bank in order to prevent theft? Or eat a few extra desserts at Christmastide in order to keep slim?

We just don't get it.

You might say you believe in Holy Salvation and still keep a rabbit's foot in your pocket. But if you want to get into Heaven you don't rape a nun.

At least, France's president Sarkozy is more honest about it: "Laissez-faire, it is finished."

Yes, dear reader. Laissez-faire, we hardly knew ye. But now, free market capitalism is less respectable than rap music. State-directed capitalism is the new thing. In the space of barely six months, the U.S. government has taken effective control over the banks, the automakers, and the mortgage industry.

From Bloomberg:

"The Bush administration's $13.4 billion rescue of GM and Chrysler is a fitting finish to a year in which governments around the world expanded their role in the economy and markets after three decades of retreat.

"The increase in the government's role in the economy has been breathtaking. The U.S. looks set to rack up a budget deficit of at least $1 trillion this fiscal year, while the Federal Reserve has already increased its balance sheet by $1.4 trillion since last December. By way of comparison, U.S. gross domestic product last year was $13.8 trillion.

"Winding back the intervention may not be easy, says [Paola] Sapienza, (associate professor of finance at Northwestern University's Kellogg School of Management).

"When Italy nationalized banks in 1933, 'the architects who designed the system envisaged it as temporary,' she says. 'It was in place until the end of the 1990s.' More recently, the Japanese government injected capital into banks to get them to lend to big corporations, keeping alive 'the zombie companies that economists talk about,' she says."

*** How will it all end?

Bloomberg has found an answer:

"'We'll end a financial crisis with a fiscal crisis,' says Vito Tanzi, former director of fiscal affairs at the IMF. 'We'll get out with very large public debt and very large public spending. That, for sure, will slow down the rate of growth for the next 10 years or so.'"

Not just a fiscal crisis. A money crisis.

Public spending will be financed first by borrowing…and then by printing. You'll see Treasury bond yields - now at historic lows - shoot up. The dollar will collapse under the pressure. Gold will soar.

When will this happen? How will it happen?

No one knows. But the Economist says it could happen before the end of 2009. It is coming…but of that day knoweth no man.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.