It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.With a cleaner understanding of economics you don't need to say "the usual rules don't apply". As interest rates go down the velocity of money goes down and with that you can increase the money supply without causing inflation. But later, when interest rates start going up, inflation can get out of control.
We are living in weird economic times, where many of the usual rules don’t apply and there are big free lunches to be had. But not everything is a free lunch, even now. Sorry.
The interest rate on 5 year bonds has about tripled in the last few months. We are leaving Krugman's safe zone of "the zero lower bound".
Once the zero lower bound conditions have ended, what does Krugman say we must do again?
At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought.If the Fed started to sell some of its trillions in bonds, then bond prices would crash and interest rates would go up more. In particular the value of long term bonds would go way down. The Fed could not sell them for anything near what it paid for them. So it could not withdraw "much of the monetary base".
Hussman has shown that an increase from near zero interest rates to just 2% would require pulling back half of the monetary base to avoid inflation. The Fed would have to sell off half the bonds on its balance sheet, like $1.5 trillion worth.
However, the most the Fed can possibly imagine is a slight tapering of the $85 billion per month rate at which they are increasing the monetary base. Even a hint of that caused the markets to freak, which caused the Fed to quickly backpedal on the whole tapering idea. There is no chance of the Fed pulling back half of the monetary base. It will not happen.
A comment on a previous crisis seems to hint that Krugman probably does not expect them to withdraw half the monetary base either:
But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.
The combination of rising interest rates, the impossibility of the Fed selling half their bonds, and Krugman's explanation of things (or sound economic theory), results in a prediction of a "sharp rise in inflation".