Letter Re: Deflation for How Long?

Dear Captain Rawles,
I recently saw the following excerpted comment at Zero Hedge and the argument makes sense to me:

In my opinion there is a flaw in the inflationary argument. It is only when money escapes into the general populace that the dilution effect on the currency actually occurs and drives up prices. By giving the majority of the new money directly to his buddies, Bernanke is simply changing the ratio of cash held in favor of the big banks and against the general populace. If the big banks fail to spend this money with wild abandon and instead hold on to most of it, inflation will be moderate or even nil.

Thus, I view the current Fed policies as simply a way to steal from Peter to enrich Paul with little or no inflationary impact whatsoever. At worst we may see inflation in equities (which we are seeing right now) but little or no general inflation since the money is not out there in the malls and grocery stores competing for common goods and services. It may take years for this extra cash to leak out into the general economy and meanwhile asset prices, like the entire housing stock of the United States, continue to fall.

Deflationary pressures may continue for far longer than many people expect. Or, as Keynes said, “the market can stay irrational longer than you can stay solvent”. – Dave R.