The European Central Bank, and the Group of 7 top industrialized countries, decided to deal with the credit rating downgrade of the United States by flooding international markets with liquidity.

Liquidity=cash and bank deposits.

One of the problems with this recession is that banks, and other financial institutions as well as big corporations, have been money hording.  Lending has not taken place as President Obama had hoped (at least to small businesses and individuals).  The result is that the ‘big guys’ have a lot of liquidity sitting around doing nothing (by the way something like this happened right before the Great Depression).

Now the international community has decided to flood the international markets with that liquidity.

So far we’ve seen inflation, albeit a mild inflation for most of the world, but get ready to see inflation like you’ve never seen before when all that money hits the markets.  You see, when there is a lot of money available to buy a lot of things, it automatically drives up prices.

Some people might think the stories of Germans using wheelbarrows full of cash to buy a loaf of bread, during their Hyperinflation of the 1920s (which helped lead to the Great Depression in the United States), is just an exaggeration.  It is not.  I’ve read the accounts, and I’ve even seen silent newsreels showing people lining up with wheelbarrows full of worthless Deutschmarks at bakeries.

This happened because the Weimar government thought by printing more money, in essence flooding the public with liquidity, that people would be able to buy the products they needed, products that were already experiencing inflation.  The flooding of money into the German consumer market made the situation worse, creating hyperinflation.

The following is from Wikipedia, on hyperinflation: Hyperinflation becomes visible when there is an unchecked increase in the money supply… also… Hyperinflation is often associated with wars (or their aftermath), currency meltdowns, political or social upheavals, or aggressive bidding on currency exchanges. Mmmm, sound familiar?