The Federal Reserve this morning announced new plans to unclog credit markets as the economic recession continues to deepen across the country, stifling bank lending and resulting in widespread hoarding of cash.

The Fed announced two new efforts to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion dollars. The move is timely as LIBOR rates ratchet higher again after a period of tightening since mid-October. Corporate bond spreads are also widening while mortgage rates remain elevated.

The Fed will purchase up to $600 billion dollars of debt issued or backed by government chartered housing finance companies. The central bank will also establish a $200 billion dollar program to support consumer and small business loans, the Fed said in a statement prior to the market’s opening.

Thus far, unprecedented efforts by the Fed and other central banks since August 2007 have failed to calm investors. Credit spreads remain historically high and three-month interbank lending rates as defined by LIBOR at 2.19% are well above the Federal Funds target rate of 1%. Though that’s much lower than 4.85% earlier in October at the height of the crash, it’s still high and testifies to a lack of counter-party confidence among lenders.

The Fed is clearly throwing everything it’s got at deflation. Bernanke is rapidly becoming “Helicopter Ben,” referring to his speech a few years ago where he warned that if deflation surfaced under his tenure as FOMC boss he would print money like crazy. That’s now happening.

The Fed’s balance sheet is expanding like a massive balloon since August with over $1 trillion dollars in assets swapped or arranged through all sorts of fancy bridge loans, collateralized loans, interbank SWAP facilities even to the emerging markets and goodness knows what else that isn’t reported in the financial press. In short, the Fed is out of control.

In Washington, the government is now guaranteeing about 30% of total U.S. GDP through backstops in financial services (Citigroup the latest bailout), insurance (AIG) and probably extending to the auto sector and, possibly, homebuilders. Pretty soon, half of GDP might be guaranteed by the U.S. government.

Throw in the cost of financing protracted conflicts in Iraq, Afghanistan and another huge stimulus package by President-elect Obama in January are we’re already in the hole for trillions of dollars.

Credit markets are still badly fractured, stocks have collapsed and housing remains in a freefall. The government’s backtrack on TARP is also confusing as investors debate whether a slush fund will be created to harbor toxic mortgage-backed securities. Or, as evidenced by Citigroup’s effective bailout on Monday, the government is sitting on residual TARP funds to attack the next disaster instead of throwing everything it’s got all at once at the crisis.

It’s no wonder gold is starting to look attractive again, even amid deflation. Investors forget their history when alluding to gold as only an inflation hedge; true, gold is primarily an inflation hedge as prices rise, but it is also emerging as a surrogate currency as the dollar, still the reserve currency of the world, heads into the abyss drowned by bailout after bailout and a seemingly never ending expansion of credit and money supply.

Gold was not freely traded post-1934 when FDR confiscated the metal. It’s therefore impossible to predict how gold will perform now in the first credit deflation since the 1930s. But I’ve got a feeling its moment has yet to arrive ahead of the next dollar sell off.

I’ll bet on gold.