I agree with everything you've said except #7. Here you make an assumption that the consumer will not go back to buying non-essential goods because he/she feels poor. If this indeed is the case, then your conclusion that there will be too many dollars chasing too few goods seems to make sense. But living at or just beyond one's means is a deeply ingrained part of American culture that can easily resume as soon as the media concludes that we're headed down the path of financial recovery.
My theory is that if a critical mass is reached in the number of people which experience severe pain (losing a home to foreclosure, filing bankruptcy, etc.), then your assumption is correct. Enough people will not participate in the next consumption cycle and hence fewer non-essential goods will be produced leaving an excess of dollars in the economy. But, if this critical mass is not reached then we will see a resumption of consumption of non-essential goods and hence the dollars to goods equation will remain relatively balanced and therefore only mild inflation.
There are a lot of dollars out there looking for a place to go, but these dollars did not go to the people who would spend them on essential goods. Rather they went to people who already had too much money (how much of the bailout went to bonuses for upper management?).
Not criticisms, just comments
2- The dollars are not staying out in large numbers- A lot of people are out of work, upside down with a mortgage, and facing other difficulties, like the price of food, etc. Also, a lot of people have lost an incredible amount of money in the stock market or investments in general. With a lot of collections defaulting, that money is vapor. The only asset left is a withering, foreclosed home that will require capital to fix up and sell.
7- I see consumer goods dropping dramatically because of the holidays approaching, and a slowing in demand. They don't make money having these goods stay in the warehouses. The American impulse to consume will drive them to spend the last dime they have on stupid, unnecessary items regardless if they can or can't.
8- Things people need will be where the flogging begins. I love it when Oil prices go up, and it's immediately reflected at the pumps when the reserves of the oil companies are reflecting the price from a month ago, and then when it goes down, it takes the gas stations a few weeks or longer to slowly change the prices to a lower price. We are going to get bent over on a majority needed items.
Emily's interests and research
For people in and around Austin, TX who are interested in working together to increase resiliency for ourselves and our communities
Group for people looking to connect in Alberta Canada
A community dedicated to the principles of sustainable living, self reliance and well being through education and collaboration