The other shoe has dropped. Actually it was more like a hydrogen bomb for all the devastation and market chaos that it caused.

Federal Reserve Chairman Paul A. Volcker launched his anti-inflation, dollar-salvaging program two Saturdays ago. The bond markets have been in a free fall ever since. You can measure the extent and quickness of the decline by looking at the table below.

In one week's time, new highs were reached in all the bond sectors listed below except the tax-exempts. The Municipal Bond Buyers Index recorded its high of 7.65 percent in 1975. Last week's jump of 48 basis points was the largest single increase ever recorded.

Price declines in the various markets ran anywhere from 4 to 12 points. One point equals $10 per $1,000 bond.

The worse carnage occurred when the unsold portion of the $1 billion IBM issue was allowed to trade freely in the open market. Within minutes, the bonds sold between 94 and 95. The estimated loss to underwriters was $15 million to $20 million, depending on whose figure is used for the amount of unsold bonds. This too was a record loss on a record underwriting.

Many investment houses suffered irreplaceable losses from such syndicate declines and on bonds held in inventory. The capital position of several houses has become inpaired, and surely several either will close their doors or be merged out of existance.

Short-term rates gyrated as the markets tried to adjust to the new rules and the new levels in which the game now will be played. Another week probably will be required before the short markets stabilize.

The long capital markets tried to improve Thursday but when it became clear that the Street would have to buy most of the $1.5 billion 15-year Treasury bond being auctioned, the market tanked again and took the municipal and corporate markets with its as well.

An A-rated Philadelphia Electric Co. utility bond did sell out with a return of 12.50 percent. The double-A Southern California Edison Co. issue was less than half sold when it returned 11.85 percent.

The money supply numbers were up last week as well. Nothing helped to stem the tide. However, by Friday, and oversold Treasury market began to improve, while some stability appeared in the other markets.

The key question is, will the Fed be able to continue its new program until the desired affect of curtailing inflation is achieved, or will political pressures force the Fed to cut short its efforts?

If the answer is "yes" the Fed will get the job done," we are sure to see higher rates.If the answer is no, we also are sure to see higher rates.But then it won't matter much anyhow because inflation will be the victor and the country the loser.

For those who have not lengthened their maturities, stay short. This fight is far from over and higher rates will present fantastic opportunities.