The original editorial appears at the Daily Bell. Once again, I could not post.
I have two comments regarding Dr. Ebeling's commentary:
1) While I can appreciate his differentiation of different types of deflation, I will paraphrase (and modify) Milton Friedman, "Deflation is always and everywhere a monetary phenomenon." Just follow the money (supply), don't worry about the other stuff.
Deflation would be the natural state absent manipulation and with sound currency. With increases in productivity, all would share the benefits. In our system, the benefits of productivity have all been siphoned off the top, witness that disposable income and other various measures of productivity benefits have been at best unchanged in 40 years. Where has all the productivity gone? We know, of course.
2) I don't believe the big banks are holding excess reserves for the benefit of 0.25% interest income. They could lend risk free for a year or two to the US for a much better rate than that (I don't want to elaborate or debate on the concept of "risk free" sovereign debt at the moment, I know the risks of this).
They don't lend because they are scared. By "they" I mean the cartel that includes the FED and the large NYC banks. They want liquidity because they know the mess they are in. They might trust the US government to pay them back in a year or two, but they don't trust that they will remain liquid in the meantime.
In this light, I would rephrase my answer to a question posed to me by the Daily Bell a couple of days ago (paraphrased): is it too late for the FED to reign in price inflation? Technically, no, if they eventually suck up the excess reserves. Of course, this won't happen because the banks (while by definition are always insolvent) are even more insolvent today. They (the FED and the banks) KNOW this liquidity is necessary.
It will eventually leak out, and it will unleash a good bout of price inflation.