The excess reserves, big piles of money, are not being put to use by banks in the form of loans, investments, etc., not because they expect deflation, as you contend, but because there is no demand for them. Demand for credit would lead to higher interest rates, and higher profits for banks, for reasons which ought to be obvious. There is deleveraging going on, economic growth is slow, the hangover from the 2005-2007 extravaganza is not yet over, so economic activity is slow and slowing.
Oh, sure, the stock markets are doing relatively well, back to pre-crash levels, but that is not sustainable without growing economic activity. So, yes, I believe a serious downturn is imminent. Markets can be irrational and are presently irrational, IMO.
Consumers are leery of taking on more debt after the fiasco. They have less equity in their homes from which to take out home equity loans, the banks are required to underwrite more stringently, and there is undoubtedly less securitization being done. In other words, money is not moving around. If you look at the St. Louis Fed's velocity measures, you can see for yourself.
You might also want to see this:
Message 28860211
In a fractional banking system, money is created by deposits followed by loans and similar transactions. In other words, all those reality-based but nonetheless 'theoretical' bytes and ones and zeros and pixels in the Fed's computers standing by which you describe ready to be theoretically sent into telecosmic light speed orbit are irrelevant unless and until they are issued and, more important, placed into the economy as loans, investments, etc. If they are issued but not used, as is the case now, economic growth slows.
Trillions of those telecosmic doodads which you describe have already been sent into orbit. They were non-starters, crashed and burned on the way down.
The sad thing is that these wonderful but useless bytes and ones and zeros and pixels are not just being sent into orbit for ultimate crash and burn by our FED, but it its a world wide phenomenon. Everyone is doing it, and everyone shall suffer. No good will come of it.
All of which points to the utter uselessness of central bankers. They are setting the stage for a catastrophe.
Advice: get gold and keep your cash handy. Incredible bargains will be had when the madness ends in a crash which will make the subprime crisis look like a game of tiddlywinks. It will be the Mother of All Crashes.
We have forgotten the ancient, pre-Biblical custom of debt forgiveness. In ancient times, debt=slavery. Wiping the Sumerian slates clean was a wonderful custom. We are too greedy and removed from this ancient wisdom. This book is in that regard IMO as important as Jay's French book:
amazon.com
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