My Ideas Re. Inflation -- Please Critique

1. As the credit bubble grew and grew and eventually peaked, many new dollars were entering the economy in droves.  At the same time, however, you had lots of new goods and services (as well as a rapid rise in asset prices) all competing for these new dollars.  Consumer inflation, while high when measured honestly, has not been considered rapant since the late 1970s even though lots of new dollars were out there.  These dollars were being "soaked up" by soaring real estate costs and a huge influx in goods and things available to spend them on.
2. As the credit bubble has popped, let us remember what we are primarily looking at:  Defaults.  Those who took out credit are now defaulting on their obligations.  They are not paying back the dollars they borrowed-- they are defaulting.  The money is not being returned to the lenders -- it is staying out in the economy.  Rather than having dollars being destroyed, we have dollars staying in existence, still floating around and looking for a home somewhere.
3. At the same time that massive amounts of dollars are still out there (left over from the credit bubble) real estate prices have dropped dramatically.  It costs less to buy a home.  Manufacturers are or will be producing less.  Things that people want but do not need (new homes! new cars! new TVs!) are not soaking up the dollars like they were.
4. The buck should stop with the lenders.  If they are not being paid back, they should go out of business.  Credit should dry up.  Lending should slow dramatically.  Some equilibrium should be reached between the supply of dollars and the supply of goods, services and assets available to spend them on.
5. But, if our governments have their way, lenders will not go out of business.  Governments will "borrow" money and print money and do what they can to keep the lenders artificially afloat through various measures.  Governments will essentially force lenders to lend through subsidization and if they cannot force lenders to lend, then they will lend themselves.
6. What this means is that, even though we are now experiencing a temorary drying up in lending, there will be far less destruction of lending capacity than would be expected if lenders went out of business. 
7. Because consumers and businesses are shell shocked, however, and because real estate was so totally overpriced, and because people are simply feeling poorer due to a destruction in their net worth, asset prices and the production of non-essential goods (new homes! new cars! new TVs!) will stay much lower than they were when they were when the credit bubble was at its peak. 
8. Relative to the things people need, however, (food! essential services!) there will be many more dollars competing.
9. If this recipe is correct, we can expect a sharp increase in prices for the basics and an overall increase in consumer price inflation even as the economy as a whole is stagnating.

FLAME AWAY!