Events were different in 2008 and 2009 than now, so the Federal Reserve has to work with markets, tying its actions more to the economic outlook than repairing the functioning of security markets.

The experimental-drug phase of monetary policy has begun, and Japan is leading the way with a round of quantitative easing. Facing the looming threat of deflation, the United States will soon follow Japan’s lead.

The focus of the Federal Open Market Committee's meeting will be on how recent financial market developments, mainly in reaction to a perceived overly expansionary longer-run budget policy, are putting the incipient recovery at risk.

Worsening economic conditions will force central banks to resort to more aggressive quantitative easing until the economy recovers.

"Engineering a successful transition out of deflation is one of the most challenging aspects of monetary policy, but the Bank of Japan just might be able to do it this time."

Losing money is embarrassing. And an embarrassed Jamie Dimon publicly admitted that J.P. Morgan Chase goofed. Three senior executives lost their jobs as a result. But politicians and regulators in Washington are rushing to leverage the bank's misfortune for their own gain.

Editor’s note: Jim Manzi is the author of “Uncontrolled: the Surprising Payoff of Trial-and-Error for Business, Politics, and Society.” He is the founder and chairman of Applied Predictive Technologies, a global provider of predictive analytics software. Manzi is a senior fellow at the Manhattan Institute and a contributing editor at...

Federal Reserve Chairman Ben Bernanke would be wise to learn from the Titanic and slow his second experiment with quantitative easing, the expansion of the central bank’s balance sheet known as QE2.