I don't think you can print money indefinitely and be casual about what the consequences might be. You've got to be very serious that this could create a lot of inflation going forward. It has not. That's true. But this has to do with our credibility being able to move the balance sheet back to a more normal level in a reasonable amount of time.

Bernanke:  Well, this fear of inflation, I think is way overstated. We've looked at it very, very carefully. We've analyzed it every which way. One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that's what we're gonna do.

60 Minutes: Is keeping inflation in check less of a priority for the Federal Reserve now?

Bernanke: No, absolutely not. What we're trying to do is achieve a balance. We've been very, very clear that we will not allow inflation to rise above two percent or less.

60 Minutes: Can you act quickly enough to prevent inflation from getting out of control?

Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.

60 Minutes: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

Click here for an alternative view on "printing money" from Bernanke's previous 60 Minutes interview.

Asked if it's tax money the Fed is spending, Bernanke said, "It's not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It's much more akin to printing money than it is to borrowing."

"You've been printing money?" Pelley asked.

"Well, effectively," Bernanke said. "And we need to do that, because our economy is very weak and inflation is very low. When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation."

Click here for Bernanke's revised views in 2010

We have some glaring examples today of the destruction that can be wrought by governments with direct control over monetary policy. Zimbabwe is the most egregious. A year ago, after having let monetary printing presses run wild to cover up problems created by misgovernment, President Mugabe famously declared inflation illegal, promising to arrest and punish anyone who raised prices or wages. Of course, that didn’t work. Just last week it was announced that Zimbabwe’s inflation reached 26,470 percent in November. The economy of Zimbabwe has been destroyed and its people cast further into poverty as their savings disappear.

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

As I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.  [18]

[18] A tax cut financed by money creation is the equivalent of a bond-financed tax cut plus an open-market operation in bonds by the Fed, and so arguably no explicit coordination is needed. However, a pledge by the Fed to keep the Treasury's borrowing costs low, as would be the case under my preferred alternative of fixing portions of the Treasury yield curve, might increase the willingness of the fiscal authorities to cut taxes.

The political temptation to try to solve economic problems with the printing press is probably as old as government, but it simply does not work. And bad as it is for the economy at large, it is a disaster for the stability required for financing homeownership opportunities to those on the first rung of the economic ladder.