The destructive power of weak money

``[The] unprecedented expansion in the monetary base has not yet been reflected in a substantial rise in consumer prices. Monetarists point out that the bulk of this expansion is due to an accumulation of non-borrowed reserves, or money left on deposit at the Fed owned by commercial banks, and so not in general circulation... In the neat world of the mathematical economist, price inflation will only take place when the banks draw down on these reserves to expand bank credit, presumably to lend to the private sector when the economy recovers. But the point that our neat mathematical economists miss is that the money is already in circulation, having been lent by the Fed to the Government through its purchases of Treasury bonds and T-bills.''