The money torrent

Although to be clear, the Fed won't buy the securities directly from the US government, the Fed is buying securities from investors on the market and it's those investors - such as pension funds, foreign governments, etc - who will then recycle those newly created dollars into government hands by buying new issues of government debt.

That's why all the talk about the US government cutting spending is just hogwash. Thanks to the Fed it will have an extra $900 billion up its sleeve to blow on wasteful government spending programmes.

In the end, with so much money being created from thin air with nothing to back it up, it will lead to a dangerous inflationary impact on world economies… and not just the US. Don't forget that thanks to the carry trade, the US is exporting its inflation overseas, so that right here in Australia we'll get the full brunt of it.

For the moment hyper-inflation - as in prices rising by hundreds or thousands of per cent each day - is off the cards. Hyper-inflation arrives when individuals become so fearful about the devaluation of their money they rush to get rid of it in exchange for tangible goods or assets as soon as possible.

But what about normal every-day price inflation? The type of gradual inflation you hardly notice, yet which eats away at your wealth and income on a daily basis?

That could and probable will continue.

But what about a new version of stagflation?

If you're not familiar with it, stagflation last did the rounds during the 1970s. It occurs where inflation remains high but the economy doesn't grow with it. The 1970s oil shock didn't help matters as energy prices soared leading to increased prices.

So, what are the odds of a similar scene playing out now? Well, we're not expecting an immediate oil shock, but look at it this way. The monetary devaluation of the US dollar and the knock-on effect of higher commodity prices is likely to see similar pressure on businesses that rely on using those commodities.

And remember, we're not just talking about iron ore and copper. We're talking about commodities such as cotton, corn, sugar and coffee. Consumer driven commodities that you buy and use every day.

Now, if those commodities rise and consumers continue to buy goods and services then the economy will give the impression of growth - even though it's only inflationary growth.

But what if consumers and businesses don't or can't play ball. What if consumers and businesses decide not to go along with the old way of doing things, and they don't leverage themselves or their businesses up to the temples with more debt?