You said, "Aren't the deflationists arguing that even though there is an increase in the money supply, that money is not and will not get into the hands of consumers enough to increase upward pressure on prices?"

I believe that is a large part of their argument. Also I believe they equate money and credit to some degree and feel that the destruction of credit offsets the monetary creation.

I contend, with thanks to Adam Hamilton and the brilliant piece he wrote a few weeks back, that they are not. Money is money. Credit is a claim on someone else's money. When credit collapses it causes an extreme disturbance but does not change the amount of money chasing the goods and services; it only changes the apparent amount of money chasing the goods and services. Whereas two parties thought they had access to that money, one party has now been disabused of that notion. It has a temporary rather than lasting effect. Once all the perceptions "feelings of deflation" are gone the same amount of money is in the sytem to chase the goods and services.

Adding new money and expecting it to never reach the economy is nonsense to me. Currently the money is tied up in the banks and the public hasn't seen it, but I believe the banks are a part of the economy. The current oddity is but a temporary situation. When all is said and done it's

price = money/goods and services.

As far as pulling the injected money back out of the economy after it has been inserted; such a possibility is patently absurd. If inflation is a tax (and governments love taxing their citizens) then removing money from the system (deliberate real deflation) would be like the government taxing themselves to pay the citizens. I'm still laughing at the thought of it.

In all this I have never denied the possibility that the financial system of the U.S. could completely implode and crash to ruins. As to whether the crash was inflationary or deflationary at the moment of its occurence there is no doubt it would have been caused by excess money and excesses in credit; but I'd be willing to accept either viewpoint in a complete crash should one occur before the inflation I predict is coming. I just don't think the world as a whole will see that prospect as anything but negative. I believe they will even attempt to work together to try to prevent it.

P.