Well I think it come back to Timber's post re QE.
The Banks are sitting on the majority of the 'reserves' that QE created.
This is because there has been no demand as corporates are not spending on capital.
However those excessive reserves are still there so if demand does return then perhaps that does spark inflation. The paper also suggested that the Fed can adjust the reserves available quite easily to quell demand. Sounds a lot like LTCM to me back in the day when they said they had solved risk. Perhaps they had solved 'known' risk. Its the unknown you can't price & that's what ends up biting you in the arse!
