Here’s something I have not gotten a straight answer on anywhere as I have been following the current financial crisis and resulting economic slowdown. Dad and Dave, I think you are two of the three people that read this blog, so if you have any thoughts on this, feel free to put them in the comments.
The government has been printing money like crazy, with billions to a trillion or so created to give out to banks, etc. Historically, when a nation prints up a ton of money, this leads to wild inflation, but the real activity in the economy points to deflation.
This makes sense, since credit is being destroyed, offsetting the increased money that has been added to the economy by the Fed. Once all this credit mess is sorted out, however, and banks start opening up the lending spigot, are we gonna get a big dose of inflation, due to the fact that there is a larger base money supply?
When the usual money multiplier kicks in again, and the money the fed puts out there is multiplied by the “magic” of fractional reserve banking, are we gonna have a ton more money in the economy than we did before?
I think there is at least one or two things I am missing here.