Originally posted by EmLasker
It's just a rise in price...
to counter that, print mo' money!
It devalues the notes that people already have. Thus, it decreases respect for, and the potential for future investment in your currency.
Say I'm a Chinese factor owner. I sell 42,000 widgets to Walmart for $2,000,000 USD.
Okay, now I have $2,000,000 USD. There are fundamentally IOU notes from the US Treasury.
Now, say that the US prints another trillion dollars to stimulate its economy. Eventually, because there is so much more currency out there, hyperinflation ensues. I still hold $2,000,000 in US Treasury notes. However, now that $2,000,000 has lost 25% of its purchasing power.
Next time, am I going to be a sucker again and sell my widgests to Walmart for dollars? No, I'm going to sell my widgets to Ikea for Euros. I don't want any more US treasury notes. the US government has already proven it has no respect for its value. Now I'm going to invest in Japan on Europe instead. Well, now, the Americans can't get those same cheap widgets.
Similarly. If I have extra money to invest, I'll be less likely to invest in US bonds for the same reason.
The other related problem with inflation is that it devalues your currency against other currencies. This decreased the purchasing power of your citizens buying foreign goods and thus could adversely affect your citizens' standard of living.
Of course, there are benefits to all this as well, but you just asked for the downside.