Central bankers are those rare human beings who actually go out of their way to make their jobs sound boring. Where the rest of us like to thrill our interlocutors with exaggerated tales of courage in the face of unimaginable challenges in the accounts receivable department, they understate for a living, professionally.

They speak in a language that is designed to induce sleep after about three seconds. Somewhere along the line, they seem to have kissed some anti-Blarney stone, a magical, life-draining rock that deprives their conversation of light, colour and fun.

“If you think I've said something interesting,” they have been heard to explain apologetically, “then you haven't understood what I've said.”

Yet such is their job, of course, that often they do things that are truly historic, momentous, as consequential in their way as a great political initiative, a soaring piece of oratory or an invasion.

But when they do, they are careful not to trumpet it. They shrug it off, downplay it all, wrap it in some impenetrable language, hoping to God that no one will notice it.

And they call it something like quantitative easing. Quantitative easing sounds like the lesson you forgot in physics class, or possibly some obscure part of the common law that has to do with conveyancing of multiple pieces of real property.

It is in fact a sensational financial departure, a revolutionary bit of economic policy. It is the monetary policy equivalent of Martin Luther's Ninety-Five Theses, the Gettysburg Address or the D-Day landings. And this week, the Federal Reserve, the US central bank, the most powerful financial institution on the face of the planet, in characteristically understated fashion, decided to do it.

If you doubted that we are living in truly turbulent times, if you are one of those people out there who still thinks that this whole economic crisis business has been overdone by the media, then the US central bank's action this week should lift the scales from your eyes.

Quantitative easing is, in essence, what you do as a central bank when you have run out of things to do to avert catastrophe. It is that moment in the horror movie when you are backed up into the kitchen by the intruder and you start pulling out the kitchen sink as your last weapon.

This week, in an historic first, the Fed cut US market interest rates for overnight loans to zero, give or take a few hundredths of a percentage point. The reason, of course, is that the economic and financial crisis is getting worse. The US economy is plunging into its deepest recession in 50 years or more, with a strong possibility that total output will contract in the current quarter at an annual rate of 7 per cent. Banks won't lend, customers won't borrow.

But worse still is the possibility that the economy might begin to suffer deflation, a period of generalised price declines. Deflation sometimes puzzles people. Isn't it a good thing when prices fall? Can't we all afford to buy more things? Weren't we panicking six months ago that prices were rising too fast?

The problem is that a general fall in the price level can be catastrophic for a country for three main reasons. First, it encourages people to defer purchases. If you can get something cheaper in six months' time, you're going to wait. For an economy in or near a depression that is a disaster.

Second, it increases the real value of debt. If you have a $300,000 mortgage and prices - and wages - fall, that means the actual value of that debt in terms of your spending power is rising.

Third, it reduces the effectiveness of monetary policy. You can't have negative interest rates (though there have been some very strange intimations of such in the past few weeks). As a general rule, people will not pay banks to hold their money; they'll just keep it in cash. So the central bank's usual tool for saving the world from recession - lower interest rates - is useless when rates cannot go any lower.

The last resort in these circumstances is quantitative easing. The central bank essentially prints money, unrelated to the level of interest in the economy. Specifically, what the Fed is proposing to do is to use the printed cash to buy up all sorts of long-term debt - mortgage securities and government bonds. That will lower the interest rates on those assets (these are not the overnight interest rates already set at zero, but longer-maturity rates). So mortgages and other loans will become cheaper, and money will slosh around the economy.

At the same time the new administration of Barack Obama is going to spend a fortune on everything from roads to railways to computers and solar panels. This will not be paid for by taxes but by the same printed money pouring out of the Fed.

The result of all this, you will remember from those heady days of the 1970s, should be inflation: usually a bad thing, but now, given the threat of deflation, a good thing, a necessary corrective to the disastrous alternative.

There are, of course, risks in this dramatic new move by the Fed. With the US printing dollars willy-nilly, the value of the US dollar should decline. This could cause international investors to shun the currency, precipitating further disastrous falls in the value of US assets.

It's also not necessarily the case that higher inflation will get the US out of its near-depression. Japan is the only other leading country that has tried quantitative easing in the past 50 years. It's been at it for seven years and is still in a slump (though it has at least stopped deflation)

The biggest risk is in storing up trouble for the future. When inflation gets going, the central bank will have to be very quick to reverse course: mop up all that excess money and push interest rates much higher. That won't be a pleasant policy for an economy just starting to recover. But it's a problem that the Fed would love to have right now. Not that those central bankers would put it quite that colourfully.

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