You are correct in saying I do not disagree with you.

Velocity is a huge factor as you correctly state. The lack of velocity is why prices have been increasing so slowly. As currency amount has increased but has not come into circulation (being held by banks to balance their books) price increase has been limited. If currency velocity returns to normal or heaven forbid goes beyond normal watch what happens to prices. No one will be talking about deflation I assure you.

You are also correct in that the Cyprus experiment of stealing the wealth of depositors rather than printing more currency and giving it to the banks would tend to hold down inflation. That was precisely their intention. However the Cyprus experiment amounts to nothing less than outright theft of legitimately earned, taxed, and stolen currency. I cannot imagine a populace stupid enough to permit such. The very fact that they have discussed this publicly should result in bank runs worldwide with further bank decapitalization (also worldwide) relative to debt. This would further add to the banks need for capitalization.

You make one point I particularly like and want to think about further. If the general populace never gets access to the newly printed currency (although in the US they are beginning to make some NINJA homeowner loans again) and then they go through their own stores of wealth could we experience a deflationary event even while huge amounts of currency have been introduced but are held in the banks? It goes against monetary history but the conditions we are seeing are definitely not normal or historical. Today's conditions are unique and given those parameters it does sound plausable.

P.

NINJA = no income, no job, or assets