Originally posted by KazetNagorra
But we have not seen huge inflation in currencies.
We haven't seen huge price rises, true.
However, the stock of money has hugely expanded. So why haven't prices risen?
One reason is that the money is not in circulation. It's capitalizing banks, who are lending less. Plus, business uncertainty and personal thrift are reducing the velocity of money. This keeps prices lower, due to lower demand.
Indeed, one could paradoxically argue, despite the current recession, prices have not fallen. Why not? It could be the larger money stock. In other words, prices have remained roughly stable because the greater money supply, and the lesser money velocity, are currently counterbalancing one another.
I think this also means the following: if sentiment picks up, and credit is loosened again, then the excess money stock will start to circulate and cause inflation, all else equal.