Via Sean Corrigan’s Et in Academia ego » The Cobden Centre, following a consideration of the predicament of Greece:
So, rather than relying on the snake oil salesmen to tell us how we should think, let us go back to the basics for a moment to see if they will help clarify the situation in which we find ourselves today.
As we never cease to point out, the immediate effect of monetary injections is to reinvigorate business revenue streams and—at first—profits. And so it has been through the Great Reflation.
Thereafter, however, the monetary influx means prices begin to rise—stubbornly not in the sectors whose overbuilding and later collapse are the intended welfare recipients—and as their changes become more unpredictable, they both dilute the money’s growth-inducing potency and swamp out the signals conveyed by prices, signals upon which all economic decisions—whether taken by producers or consumers—must be based.
Unless the monetary authorities then abandon all sense of responsibility, their actions—however reluctantly taken—to counter this will tend to reduce real money supply, either actively (by slowing its nominal growth), or passively (by not adding sufficient to offset its declining purchasing power).
At this point, those whose continued expansion—and perhaps even their very continuance—in business has become too heavily dependent on the maintenance stimulus rush will again start to falter.
This last neatly describes conditions in many of the major economic zones of the world, with the current exception—thanks to the lunacy of QE-II—of the US.
I recommend the full article.