Skipper,Of course the velocity of money is important. It needs...

Skipper,

Of course the velocity of money is important. It needs to be changing hands to do it's job and to have any impact. Quite right. To be a bit libelous simplifying the issue de jour - the velocity we need to worry about is money changing hands *between banks*. Between individuals is a secondary concern. The fear that banks may hoard their cash as other banks become risky propositions is the problem here. And increasing monetary supply at the moment is aimed to do just that - get the banks swapping away again hapilly. The Libor rate isn't a bad metric here (ndicating not only general inflationary and deflationary concerns, but also risk), and is actually looking quite healthy right now compared to the rest of the post 2000 period. Not much chance that the average American will start hoarding money (ie: saving) as most are too used to living on the edge of their means to be able to make meaningful savings. The problem is *banks* saving. And it's not in their vested interest to do so.

For what it's worth, I see banks absorbing some of the new monetary supply in order to plump back up a bit. Once that happens, though, they become less risky to lend to, and money starts flowing all over the shop again. Rather a lot of money, as it may turn out.

So I do think that the money increasing is net inflationary, offset by slowing real economies putting the drag down on the inflation being created. No idea who will win that tug-o-war but an awful lot of smart money is predicting deflation (short term at least).