For a long time and the history says that inflation, predominantly hyperinflation works against the country. The classic example is Zimbabwe which used to have a note of One Hundred Trillion Zimbabwe Dollar bill, which are 100 followed 12 zeroes. John B Taylor in his blog abstracted a great article from Patrick McGroarty and Farai Mutsaka and states that printing money beyond a limit can create conditions like this. He has been asking Fed to rethink on the idea of going beyond QE-III.
Though there is no relation with this piece of junk dollar vs QE-III, but the situation may arise. The QE-I and QE-II have created conditions conducive to US growth story but not to a large extent. The 10-year US Bond note has reached to 3 per cent range where it stood before QE-II and also, the GDP growth slowed down to 1.8 per cent, much below the market expectation.
Perhaps US must think again and again before committing to QE-III as the world dynamics are also dependent on it. Funds may again move to Emerging Market Economies (EMEs) creating the nightmare of volatile capital flows for these nations creating a unbalance on their deficits.
Note: Zimbabwe bank notes have already been discontinued with new series of notes. This blog has already reported a story on it – here.
