[unclebucknasty]

>As long as there is excess supply, one can buy the supply with newly created money without raising prices

I don't understand how this works in the case of, say, quantitative easing, which released tons of new cash into the economy, while nothing else had fundamentally changed with regard to supply in the economy. By your definition, wouldn't that create rampant inflation?

Or, are you saying that much of that money ended up in the equities market vs. "in the economy" as fresh demand, which allowed supply/demand equlibrium to remain virtually unchanged?

[nhaehnle]

Exactly: Quantitative easing did not release new cash into the economy. It only swapped assets that banks held (such as treasuries) for central bank money (aka "reserves"). This is why you saw some asset price increases (which is the stated goal of QE), but almost no effects in the real economy (which is the other stated, but unrealistic, goal of QE).