Scald milk, then add sugar, salt and nutmeg.  Cool.  While milk is cooling, dissolve the yeast in the warm water, then add to the milk.  Add flour 1/2 cup at a time, beating well after each addition.  Cover with a towel and place bowl in a warm place to let the dough rise until size is doubled.  Break dough into even pieces, about 2".  Fry in heated vegetable oil; drain.  Sprinkle powered sugar over finished product.