Turning points in bear markets are more often than not signposted by big U-turns in government policy. The de facto nationalisation of Fannie Mae (NYSE:FNM) and Freddie Mac by a pro-market Republican administration is a U-turn of huge proportions. The question, nonetheless, is whether it will be enough to put a floor under both credit and equity markets.

Ending Fannie and Freddie's ability to operate as wildly over-leveraged, subsidised hedge funds in short order clearly helps stabilise the financial system both domestically and globally. It also confirms once again that the US will throw everything that can be thrown at the problems arising from the bursting of the credit bubble and the threat of deflation, even at the cost of turning itself into something that looks unfashionably like a socialist country.

We cannot know the potential bill for rescuing these government-sponsored entities because it depends on what now happens in the housing market. Yet it is clear that risks are being taken on the side of fiscal profligacy. And to those who have wondered who would replace the debt-exhausted US consumer as the main driver of the global economy, the message is that governments will henceforth be doing much of the work.

The US fiscal position is not pretty. The Organisation for Economic Co-operation and Development puts the cyclically adjusted fiscal deficit at a hefty 5.2 per cent of gross domestic product in 2008. And that probably paints an unduly glossy picture. For the OECD points out that the retreat from record corporate profitability, together with the downturns in housing and the financial sector, could produce a much sharper fall in tax receipts than allowed for in conventional cyclical adjustments. But no matter. John McCain and Barack Obama are both proposing gung-ho increases in the deficit.

In Japan, Yasuo Fukuda embarked on a populist fiscal package before his recent resignation in spite of fiscal conservatives' worrying about easing when gross government debt was close to 170 per cent of GDP. Unless the fiscal hawk Kaoru Yosano wins the battle for the prime ministership, further easing may be in prospect.

In Europe, meantime, some countries still have room for fiscal manoeuvre and those that do not may act anyway. After one damp-squib package in the UK this month, it would require bravery to forecast that a desperate Gordon Brown will refrain from further fiscal action to boost his chances of political survival.

For its part, China is in fiscal surplus and enjoys a low level of government debt. If growth slows, it has the wherewithal to put its economic show back on the road.

It follows that, in spite of the current ineffectiveness of monetary policy, the risk of deflation in the US and of recession in the global economy will probably be averted in the absence of serious shocks. The medium-term problem is more one of below-trend growth.

The real difficulty with the Fannie and Freddie rescue is that it relies on debt-exhausted US households to take on even more debt when both unemployment and the cost of living are rising, and there remains a huge overhang of supply. This is a tall order. As David Roche of Independent Strategy argues, the rescue will also defer the necessary task of writing down the value of assets and loans to realistic market values.

Where the broader financial markets are concerned, the process of deleveraging after the credit bubble still has a long way to go. Shocks could emerge at any time from the derivatives markets.

Many warn, all too plausibly, that a further round of capital-raising by the banks is looming. And who knows how much capital might subsequently be needed under a toughened-up Basel capital regime?

My conclusion would be that the weekend bail-out was a prerequisite for underpinning credit and equity markets, but not sufficient to do the trick. The inflationary consequences of fiscal largesse make this a bad time to hold government bonds. And, as I suggested here in June, central banks that seek to counter fiscal profligacy may soon find that their independence is under threat.

John Plender is an FT columnist and chairman of Quintain plc

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