Its early. First the deflation and debt default. Then, the political panic as 2010 elections approach. Then, more government spending in a mad attempt to preserve Congresscritter jobs. Then, an ocean of money in the global economy as other countries try the same trick. Then, too much cash in a no growth economy (1970's anyone). Then, inflation pressures build. Then, the massive outstanding debt starts to lose value. Then, panic as investors unload debt and flee to tangible assets. Then inflation as tangibles (including housing prices) start to rise.
We are in for a rough ride and there are no clear answers because we can't predict the sick minds of the Democratic Quants and their lackies in government. So... good luck! Inflation with slow or zero growth cost Jimmah Kahta his job. Obama had better think about the 1980 election results.
I appreciate your argument and sometimes find that position convincing. What’s working against it is the sheer quantity of credit disappearing due to massive debt default, a process that is only going to get worse as default spreads from residential real estate to the commercial sector.
I’ve seen figures indicating that defaults are in the range of 40-50 trillion, which dwarfs the 2 trillion or so that the government and Fed are injecting. That liquidity could grow if, as you point out, other central banks join the game. But will that counter the huge amounts of credit vanishing? The Japanese tried fighting a credit collapse without much success.
I’m not sure how much of that new money will get into the hands of the public. Banks aren’t lending, which makes you wonder just how much worse their balance sheets may be than we already suspect. The American public has relearned the value of thrift and that lesson may stick. This all works against the velocity of money, and for a good inflation to take off the velocity will have to pick up.