Time magazine starred Alan Greenspan on its cover in 1998 for cutting interest rates, naming him one as of three people comprising a “Committee to Save the World.” Eleven years later, the same magazine indicted him as one of three people most culpable for the great economic collapse of 2008–09. Then, in 2009, Time named Greenspan’s successor, Ben Bernanke, as “Man of the Year” for cutting interest rates as part of “an effort to save the world economy.” Guess what comes next in this sequence of praise and blame, relief and recrimination. You have to work hard not to see it on the horizon, and the reason is clear: When money is too cheap for too long, it inevitably creates a problem.

In those bygone days known as the 20^th century, the problem cheap money created was consumer price inflation. In the past 25 years or so, it isn’t consumer prices but asset prices that have run away. Cheap money gushed into real estate in the 1980s, into tech stocks in the late 1990s and into housing in the early 2000s; now it is gushing into food and commodity prices. When interest rates are low and money flows freely, all seems good and getting better. But each inrush of cheap money merely sets up high asset prices for the collapse to come. And when collapse comes, it’s nearly always bigger than the one before. And to recover from that collapse, the Federal Reserve makes money cheaper still, for even longer than it did the time before.

It has to escalate the dosage because, like that next hit of heroin, each gush of cheap money is less effective in restoring growth to the economy than the one before. When real estate prices turned down in 1989, contributing to the mild recession that started the next year, the Fed cut interest rates to 3 percent and kept them there for a year and a half. When the stock market bubble of 2000 burst and led to the “tech wreck” recession of 2001, the Fed cut interest rates to 1 percent and held them there for a year. When the housing bubble of 2007 burst and led to the Great Recession of 2009–10, the Fed cut interest rates to zero and has held them there for almost three years so far, with the promise of another two years to come.

This money is not just cheap. Indeed, even calling it free would understate just how cheap it is. If you consider that U.S. inflation is expected to be about...