Thx for the reply Mixer,
most of the credit he's talking about was internal to the banking system. Yes, that credit destructing is causing merry havoc in the economy, but was never part of the economy to begin with - it was internal to the banking system.
I don't find this makes sense. It sounds like a real artificial and arbitrary distinction to say that the credit was somehow separate from the rest of the "real economy." Don't you think so?
Part of the reason we're not seeing 100% inflation right now is that the newly printed money is currently sitting in banks and improving their balance sheets instead of running around the economy. It'll have to come out into the economy soon, and then we'll really see who was right - the inflationists or the deflationists.
I agree. GN thinks that because the FED is now paying close to zero (because of the lowering of the Fed Funds rate to zero or .25 or whatever it is...) on excess reserves, the banks will start (if they haven't started already) lending this money (and thus making it go thru the fractional-reserve multiplier process).
My hunch (I might be wrong, just a hunch), is that the once the new reserves get multiplied they will
vastly outweigh the destruction of bank credit. Why? Simply because the AMB has just increased so much.