Paul Krugman defines the extremes the Fed has gone to in its efforts to save the economy. And the limits it faces:

Still, that’s not what has me worried. I’m more concerned that despite the extraordinary scale of Mr. Bernanke’s action — to my knowledge, no advanced-country’s central bank has ever exposed itself to this much market risk — the Fed still won’t manage to get a grip on the economy. You see, $400 billion sounds like a lot, but it’s still small compared with the problem.

Indeed, early returns from the credit markets have been disappointing. Indicators of financial stress like the “TED spread” (don’t ask) are a little better than they were before the Fed’s announcement — but not much, and things have by no means returned to normal.

What if this initiative fails? I’m sure that Mr. Bernanke and his colleagues are frantically considering other actions that they can take, but there’s only so much the Fed — whose resources are limited, and whose mandate doesn’t extend to rescuing the whole financial system — can do when faced with what looks increasingly like one of history’s great financial crises.

The next steps will be up to the politicians.

I used to think that the major issues facing the next president would be how to get out of Iraq and what to do about health care. At this point, however, I suspect that the biggest problem for the next administration will be figuring out which parts of the financial system to bail out, how to pay the cleanup bills and how to explain what it’s doing to an angry public.

And remember John McCain recently admitted economics was not his strong suit.

That’s been my worry since I saw the housing bubble peak in 2005. Historically, declines in housing prices take 3-4 years to bottom, which means we still should be at least half a year away. But after that, the economy doesn’t rebound instantly. It yo-yos for a bit - essentially running horizontal.

Whoever our next president is will likely face 2-3 years of turmoil, despite the Fed and despite any other bailout efforts. They’re likely to suffer serious midterm losses in Congress. The rebound should come in time to secure re-election, if they don’t completely mismanage it.

But in the meantime, it’s hard to gain substantive new policies beyond relief efforts. Which means national healthcare is more likely to occur in 2011 than 2009. And in the meantime, tighten those belts, pay down your debts and hope you don’t lose your job. As I worked for a real estate broker, I was laid off 10 months ago, and I’m telling you, it just isn’t easy. And it’s gonna suck like Herbert Hoover if McCain gets the nod.

But the rich war profiteers, from Exxon to Halliburton to KBR? They’ll be eating cake and laughing all the way to their Middle East headquarters and banks. And you didn’t even realize there was a whore in your boardroom.