>> Because when the economy picks up the Fed will decrease the size of the monetary base by selling treasury bills. That's how it has always worked in the past

>> Because when the economy picks up the Fed will decrease the size of the monetary base by selling treasury bills. That's how it has always worked in the past: by extremely careful control of the money supply, through selling or buying treasuries. That's not what's happening right now. The FED is not just buying treasuries, but also RMBS, derivates, even shares, all at unprecedented scale, and all while keeping interest rates at near-zero. And let's not forget the billions of dollars used to 'save' banks: ultimately, the US government has to finance these by either raising taxes (not happening) or borrowing more from the FED, which means that effectively the 'bad loans' and their derivates that almost brought down these banks are also financed by an increase of the money supply. Your assumption the FED can cool down the economy without completely killing it by huge interest rate hikes and sellof of US treasuries -throwing millions of people in unsurmountable debt and completely devastating all confidence in US treasuries as solid investments- as soon as the money velocity goes up and inflation starts to rise, is naive at best. Central banks around the world are very aware of the monster they are creating and the risk that it will lead to a world-wide currency devaluation war. Just read between the lines of public statements about Japan trying to devaluate the Yen, or China artificially keeping the Yuan as low as possible for years to protect their cheap export strategy. >> Mainstream economics explains why inflation occurred in those countries. Those cases have been thoroughly studied and are mostly well understood. While the factors that caused the monetary collapse in the countries I mentioned were different, the ultimate effects are comparable: an unmaintainable monetary status-quo leading in a loss of confidence in government-controlled currency. I'm not sure why you think 'This time is different (tm)' for the US, Europe, or Japan.