Increasing the money supply is a sure way to get more troubles and run away inflation.
The reality is more complicated: Central banks print 10x more money and buy out all the troubled assets in the country while still introduce very low or none inflation, since the sellers of those assets (commercial banks) simply put back their income money into FED's reserve account and don't touch those money, to ensure there will be no extra liquidity on market, thus no inflation
This is an interesting observation to ponder on. Peter Warburton wrote a book 'Debt and Delusion' in 1999 that is not framed in Austrain economics, but tries to answer the question why money printing did not lead to massive inflation. Warburton also touches this topic in a very clean post from 2001 reflecting his thoughts on the state of affairs: w.gata.org/node/8303 Most of his thoughts still apply today and his remark on the absence of 'a stable numeraire' is very intriguing when thinking about Bitcoin as possible contender.
I found the book very hard to read but did so anyway, but - when it comes to the observation that is central in this post - you are better off by reading a review of this book by someone with an Austrian view:
http://mises.org/library/debt-and-delusion This one will also take some brain cells to digest and is perhaps more about the thoughts of the reviewer than whats actually in Warburton's book, but it creates the clear outlines of a theory why all this massive money printing has not (yet) led to massive inflation. Johnyj and others are on to something here....
Related to the above and also excellent seed if your mind provides vertile grounds is the theory described in the following blog posts:
http://parcontre.blogspot.nl/2008_08_01_archive.html with the update (2013):
http://parcontre.blogspot.nl/2013/05/deflation-or-inflation.htmlPerhaps very simplistic to some educated souls but it paints a helicopter view of the financial economy versus the real economy over a span of decades and how things seem to go in cycles. Suppose this theory has any merit, we are experiencing a financial economy that is blowing the biggest debt bubble ever while disconnecting with the real economy to an increasing extent. The summary is that either the financial economy will snap and meet the real economy below (deflationary) or the real economy meeting the financial economy above (inflationary). A bit of both could mean Gold at $5,000 and the Dow at 5,000 (if history will again rhyme with a 1:1 Dow/Gold ratio at the bottom of the resolution between the financial and real economy). An interesting theory for the broad picture with some interesting ideas on the historical interest rates. Similar thoughts can be drawn from charts like TobinQ:
http://csinvesting.org/2014/01/09/tobins-q-the-market-is-60-overvalued/These things sure keep away the daily drivel of pundits and guru's on Apple flash crashing and stock markets rising (or gold being manipulated) in sight of near depression of the real economy. In the long run, this will not matter. The case for holding bitcoin will not be made over a time span of 1 year only.
As an end note: 'end of the dollar' is a misleading theme. History shows that even with extreme inflation (like 50%
per month), people still use the official currency. The dollar may crash and burn, but will surely not end just like that. Therefore, we should not use this terminology when speaking about this topic.
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