The Dow dropped 777 points yesterday, in part as reaction to the failure of the bailout bill to pass the House. The bullhorning for another attempt to pass it has already begun. Meanwhile, the Dow has recovered 200+ points this morning, as one might expect. 

Today’s problems are the direct result of years of government (read, mostly, Federal Reserve) attempts to manipulate the economy by pumping in more and more credit. Doing it yet again, but in more size, is not the way to fix the problem. At best, it simply defers the problem at the cost of aggravating it. Keynesian stimulus is applied by increasing borrowing, but never yields enough growth to repay the debt. As a result, the debt builds up over time, as more credit has to be injected just to cover the cost of servicing existing debt. In 2007, it took over $6 in new debt to yield $1 in increased GDP. Eventually the point is reached where servicing costs overwhelm borrowers and the whole structure crumbles.