The Federal Reserve is expanding the monetary base, the money supply, at a very fast pace. With the economy in decline and a credit crunch where businesses and consumers are having a hard time borrowing money, the Fed is trying add funds, liquidity or money supply, to the financial system to prevent a economic depression. With a slow to declining economy where production declines mean less products available to purchase as well as the money supply expanding meaning more money to purchase things, higher prices are likely.
The government under Obama and the Democrats is spending and borrowing record amounts by the trillions of dollars. The Federal Reserve will be forced to pump up the money supply so that the government can sell it’s debt and provide banks enough money to make loans to businesses and consumers. Government borrowing at the extreme amounts we see would result in all available money going to government debt like treasuries, crowding out other borrowers. No one would be able to borrow as the government takes it all. The credit crunch the federal budget deficit is causing would drive the economy into a depression. So the Fed will be forced to print up money, expand the money supply to make money available to those that need to borrow. As the federal deficit grows the need to expand the money supply grows and so does the risk of high inflation. Expect a tipping point where a stagnant economy with expanding money supply results in very high inflation.