At the moment, money is being hoarded (especially by the banks). That's a natural response, at the level of the individual and the firm, to a financial crisis of confidence. But what happens if and when people begin to spend again? Take a look at an indicator of the growth in the money supply:
Note the unprecedented spike in 2008 (which will continue through 2009). Either there will be a lot of new, real, wealth to match the expansion of the money supply (which I consider unlikely), or we could see an inflation the likes of which we've never seen before.
I hope I'm wrong about this. Where's my mistake?
St. Louis Fed: Series: AMBNS, St. Louis Adjusted Monetary Base
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