First, stocks soared in the late 1990s to levels entirely unjustifiable on any reasonable valuation mechanism, with even the Dow Jones Index of 2000 being more than double its proper level. That had happened previously in history, in 1929 in the United States (though 1929's overvaluation was less egregious) and in 1989-90 in Japan; in both cases it resulted in a severe economic downturn, the one unprecedented in its depth, the other unprecedented in its duration.

In the US after 2000, the solution was to expand the money supply still further, overriding the market's natural deflationary corrective mechanisms by forcing real interest rates down to well below zero. That, allied to the "cre...

First, stocks soared in the late 1990s to levels entirely unjustifiable on any reasonable valuation mechanism, with even the Dow Jones Index of 2000 being more than double its proper level. That had happened previously in history, in 1929 in the United States (though 1929's overvaluation was less egregious) and in 1989-90 in Japan; in both cases it resulted in a severe economic downturn, the one unprecedented in its depth, the other unprecedented in its duration.

In the US after 2000, the solution was to expand the money supply still further, overriding the market's natural deflationary corrective mechanisms by forcing real interest rates down to well below zero. That, allied to the "creativity" of the housing finance sector produced a boom in housing that was unprecedented in the United States. When that in turn led to disaster, the Fed over-expanded money supply yet again, and produced a commodity bubble that has pushed the oil price up by 50% in eight months and is now threatening the entire fabric of the world economy as well as potentially starving millions of the Third World's impoverished people. While the poor may starve, the rich, either asset owners or, as on Wall Street and in corporate top management, asset manipulators, have done very well indeed from cheap money, much better than they should have done in a truly free market.
The Bank of Japan, the People's Bank of China and the Reserve Bank of India have also pursued excessively expansionary monetary policies. International reserves of foreign exchange increased by almost 17% per annum in the decade to December 2007, almost treble the increase in nominal global GDP. The current global inflation was thus inevitable; it is likely to get substantially worse.
...read the rest at the source, very well written and easy for even us average citizens to understand.