To continue Antifragile’s nice response, at base it is simple: what quantity of spendable money exists and what can it be spent on? This quantity includes base money, but also bank deposits (i.e. credit). Since 2009, huge amounts of base money deposits have been created by recycling treasury debt in virtually all OECD countries. This is theoretically a reversible process (e.g. the FED sells the accumulated debt back out into the open market), but in practice, they never will and it is essentially printing money which ends up as base money deposits at major financial institutions.
This new cash is at first only accessible to large financial institutions, so the initial question is how do/can they spend them? The answer so far is into financial markets (more spendable currency → higher asset prices) into companies via debt facilities (which have mostly on net gone to financing stock buybacks), and into underwriting mortgage markets (more spendable money → higher prices). So that is where the first major waves of the new money appeared.
Ordinary people’s first crack at spending any of this new cash comes via stock sales (assuming they had financial assets before), or via being able to loan (or be paid) more for a house. So the money has a much slower process to filter through and to start appearing in ‘the real economy’. But now, it seems that the wave of cash is leaking into ‘bad’ price rises, e.g. in inputs. More expensive food, raw materials, land, etc. All because there is more spendable deposits in the hands of entities that spend money on that stuff compared to production levels.
Where this turns bad, is that if people and companies have to spend more on non-discretionary inputs, then they will have less surplus with which to service debt/expand/consume. Imagine a household now looking at their vehicle and grocery budget and saying ‘we have to downsize’. Further, if financial institutions look at the future expansion of prices and decide that on current trajectories, they are losing money in real terms, the natural thing to do is increase interest rates (e.g. the price at which they lend money to the broader population. This of course means that people/companies can borrow less … and if they pay down debt instead, it destroys spendable currency.
I think this is where we are now… if the markets were left alone, interest rates would rise quickly and asset prices would implode. But if they keep their foot on the gas, there is enough money leaking out of the financial world to keep bidding up real world inputs, and increasing the pressure on free cash flows… e.g. the longer they do it, the more pressure will exist for interest rates to rise, and the less cash flow will be available to service debt.