And this is what printing more currency does. It makes nominal prices go up, but it doesn't produce new wealth. That is only done through increased production.

We can price all sorts of things this way. GDP for example is “very strong” according to CNBC and other pundits. But it's only strong in terms of dollars - not in terms of gold.

In other words, currencies all around the world are falling, giving the impression that wealth is being created. But alas, it isn't. We all just have more currency.

What's the harm in this? An increase in the money supply is introduced into the real economy only through new debt. Thus we see huge budget deficits and huge consumer debt all around the world, along with huge external imbalances between producing countries and consuming ones.

This will stop only when bond holders realize (or acknowledge) that they're being paid back in currency worth less and less and therefore demand higher interest rates (US short-term rates are going up for this reason).

Alternately, it will stop when the huge money supply being created is interrupted from getting into the real economy, either because banks begin to balk at lending more into ever-falling credit quality (in 1980, 3% of the corporate bond market was junk; today, 67% of it is) or debtors themselves reduce their demand for debt because they cannot service it. This is the tug between hyper-inflation, inflation, stagflation, and deflation that we see.

This is a long and insidious process first started by the Federal Reserve in earnest after 1987. The process has become egregious and coordinated in the last few years.