I guess you have a great point. If the Fed keeps producing money, then its exchange value will drop to rock bottom. However, keep in mind that the little use value not directly related to exchange (wallpaper, fire tinder, etc.) will still remain. For example, if lots of food was produced, it would loose its value for exchange (if food was a currency), however, its use as a source of nourishment will still remain. However, if a lot of dollars are produced, then yes, it would loose its value, since it is only designed as a medium of exchange.
That is really scary.