OK, in the econ forum there is currently a post again bemoaning the delayed fulfillment of the inflation prophecy based on the fact that so much money has been printed in the US.
First of all let me say that the prophesy is even more delayed in Japan. There the government has been printing money for a very long time and they actually have active deflation.
This post is for "Austrians" who want to understand the phenomenon and defend sound money practices.
So what gives?
Here is the basic truism of money supply => price inflation dynamics: If
the total amount of money in circulation increases by some percentage, given that the goods and services have remained static, then inflation will occur proportionately to the increase.
In other words:
Inflation = Increase in total money / Increase in total money supply - Market Deflation.
Market deflation is the result of improvements in all areas of the economy that are caused by competition and result in price decreases.
So why don't we see it in the US or in Japan? Simple, the
total amount of money has not yet increased significantly.
Let's compare Japan's M3 and their inflation experience to South Africa's M3 and their inflation experience.
The only period I have data for comparison is April 1998 to March 2009. There is probably more, but given I don't understand Japanese its a bit hard for me to locate.
So if we compare how much total money was in circulation in Japan in Jan 1999?
597,529,200,000,000 Yen
How much was in circulation in Dec 2008?
741,710,100,000,000 Yen
How much did M3 increase?
About 24% over 10 years or only 2,17% per year...
What was inflation during this period?
Just under 0%, mild deflation.
Let's look at South Africa
How much was in circulation in Jan 1999?
434,000,000,000 Rands
How much was in circualtion in Dec 2008?
1,888,856,000,000 Rands
How much did M3 increase?
About 335% over 10 years or 15,8% per year...
What was inflation during this period?
Just under 6% for the whole period.
Dealing with questions:
1) But didn't the Japanese government print trillions of Yen?
Yes they did. But due to the nature of debt backed money what they were actually just doing was loaning money into existance as they population was paying off debts or "destroying money" by canceling the backing loans. M1 went up 94% during this same period. In spite of M1 increasing, M3 was getting swopped out from private debt to public debt or the backing loans were geting paid off.
2) Why was there mild deflation and not inflation of 2.4% or in South Africa's case inflation of 15%?
Market deflation is the natural tendency of the economy to make things cheaper as actors compete for customers. The Japanese haven't been sitting on their hands for the past decade, they've been working, learning, innovating, etc. South Africa has even more pronounced deflation most likely due to the fact that over the past decade much of its population has been uplifted from close, or under the breadline to well above it. They also benefit by simply implementing market solutions that may have been developed elsewhere long ago, but that their developing economy only recently had the opportunity to implement.
3) Why didn't M3 grow more in Japan?
Because money is backed by debt contracts, paying off the contract can destroy the money. This is an over simplification but is effectively true. The Japanese have been paying off MASSIVE amounts of debts since their real estate bubble in the late 80s. Also there is a ceiling to debt in a society above which no one is interested in getting in more debt, even in the interest rate is 0%.
4) Why did M3 grow in South Africa?
South Africa is used to inflation, their reserve bank thinks its a good thing. So they make loaning money easy, which makes it worth less and makes it easier to pay off past debts. So they don't reach saturation of the debt burden as quickly, nor have they reached it yet.
Dealing with objections:
1) See printing money doesn't matter:
No it does. Printing money makes the money in circulation worth less than it
would have been. The fact that it would have actually increased in value, while the government has now kept it at the same value, does not make it a good thing that someone who produced and earned money, should have an increase in purchasing power taken away from them.
2) So governments can print money without causing inflation or damaging the economy:
No they can't. In addition to removing purchasing power from people they miss-apply that money on projects that draw productive individuals to en devours that society would not have voluntarily paid for (IE they did not want.)
Final note on the US.
By estimates M3 has gone down and not up for a while after the 2008 crises. The Fed no longer measures M3, they said spending the few million a year in measuring it is too expensive. So we can only guess that is has mildly swelled or stayed the same. Americans have not been idle either so we can assume that healthy market deflation is happening.
Until M3 does not grow substantially, there will not be inflation. If lending does kick off en masse again however, M3 could explode.
PS A note on South Africa, the central banking, fractional reserve monopoly on the issuance of money, while not employed for the benefit of government directly, is employed against one group in favor of another. All poor South Africans have their purchasing power stripped yearly in favor of handing out loans to richer, more "credit worthy" citizens. The surrealism of the situation is compounded by the fact that 80% of tax incomes is then extracted from the beneficiaries of the banking system (2.5% of the population) to "hand back to the poor". More proof that if governments leave people alone on all fronts, people would be able to take care of themselves.
Links:
Japan's M3, M2 and M1
http://www.econstats.com/r/rjap__m34.htmSouth Africa's M3
http://www.resbank.co.za/Research/Statistics/Pages/OnlineDownloadFacility.aspxInflation checking
http://www.tradingeconomics.com/country-list/inflation-rateTips to
1CCucnY2b3QE1tya5MWtLRPoAtP5YtokaK 
