Fed creating the biggest bubble of all

Congress approved the $700 billion bailout approved. The Fed now says they will provide $900 billion as loans to banks (interesting typo in the original article).

Can someone please explain where the additional $200 billion come from?

There is one more item that worries me in that article:

“The Fed also said it will begin paying interest on commercial banks’ reserves, another way to expand the central bank’s resources to battle the credit crisis.”

Wait – they print new money that the US taxpayers vouch for, then they create more money for the part that banks don’t use up immediately???

Yesterday I started watching Zeitgeist: Addendum II (which I think you should watch, too). The part I link to explains the concept of fractional-reserve banking, basically how money is being created out of thin air. I think it’s also worth mentioning that the Federal Reserve is more likely to expand the amount of money than, say, the European Central Bank.

I’m just a layman here, but it seems to me that already the US GNP is in a bad relation to the amount of money. If that amount increases, even more, would that not mean a risk of hyperinflation?

This makes my head hurt. Can somebody please shed a light on this?

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