(1) MALINVESTMENT – which will always have dire consequences as a loss to be absorbed by many or all – such as your retirement pension now resides in a Chevy Clunker junkyard or an Afghan mud-pit

(2) Government can keep EXPANDING– with all the negative consequences for civil liberties, freedom etc. with a new “example” here (slight aside):

http://www.rutherford.org/articles_db/commentary.asp?record_id=676

(3) Higher TAXES – as real losses get turned into paper gains and small gains become monumental gains in a “progressive” tax system

Sadly, many people are pro-statist and deeply in debt. Most of the rest are confused, apathetic, or have given up. The few who protest are easily led astray by the hypocritical Republikeynsians looking for their turn at power.

{{ P.S. If economic Armageddon is not depressing enough, here is some depressing but thought-provoking reading on the cultural/civil-libertarian front:

http://www.nationalreview.com/articles/print/243587 }}

Dan

To properly understand monetary policy, you should approach the Monetarists. I would recommend Scott Sumner who has turned me from a proto-Austrian Business Cycle Theory believer to a new monetarist on this issue. You don’t need to agree of course, but just grasp the basics of the theory.
The popular or financial press is NOT a good place to try to understand it, as its full of old-keynesian language which does not comport with macro monetary theory.

I’ll use your example from the Iran-Israel post on the murderer saving someone from rape. Similarly, because the State has assumed the responsibility and power of money creation which most libertarians view as illegitimate, does not mean that everything it does with that power is illegitimate or would not be done in a market setting either.

[See my response, vis-a-vis the role of the state in classical liberal theory, in UPDATE II of the post to which you refer.–IM]

Simple increases in money supply DO NOT guarantee inflation. Inflation is dependent on EXPECTATIONS of market participants. For example, if Bernanke prints $5 trillion today, but announces that he will pull the $5 trillion out in 12 months, there will hardly be any inflation IFF Bernanke has CREDIBILITY. This is called anchoring.

It may not be inflation if money supply is falling as indeed it has been for the past 6 months.

It would in fact be reversing a drop in the money supply/deflation.