I very rarely respond to comments from uninformed people, especially when expressed in the Internet’s lingua franca of the uninformed, which is petulant snark. I’m making an exception in the case of darwinxavior, who commented on my story about the economic outlook yesterday.

Darwinxavior (say it out loud) is as confused as his name is deluded, but his confusion is shared by a great many people, so it merits a clarification.

I wrote about the challenge facing policymakers, which is to prevent a continuation of the deflationary collapse of the housing bubble. In order to mitigate systemic financial disruptions (driven proximately by poor liquidity), central banks have been creating emergency liquidity facilities since 2007. The government has also been bailing out everyone from Fannie Mae to General Motors (and next, CIT).

So the meme has gotten started that we’re “printing money” like it was going out of style. In fact, if you pay attention to news stories, you “know” that we’ve spent something like $10 trillion on all the bailouts, etc.

My concern is and has been deflation, but because darwinxavior “knows” we’ve been printing money, he says: “Deflation? Yes, the more money we print, the more it will buy. That makes perfect sense.”

I’ve been watching the Fed’s activities closely for a long time now. Back in October, they expanded their balance sheet from about $800 billion to somewhat more than $2 trillion. This is the only activity that can considered directly inflationary, in the sense of “printing money.”

About $600 billion in new bank reserves (”Fed funds”) have been created. If converted fully into credit, this much reserve could theoretically inflate the US economy by literally half again as large as it is now. Why then isn’t the US looking like Zimbabwe?

Because inflation isn’t too much money. It’s too much money chasing too few goods. And with consumers in a low-demand, high-savings mode, not many goods are being chased. The Fed’s extra $600 billion in high-powered money is lying fallow on the reserve accounts of the country’s banks.

It we were to get a sudden burst of good feeling, and those reserves started finding their way into the economy, the Fed would be able to yank them right out of the system, with no more effort than clicking a few keys on a computer.

What about quantitative easing? Now that is real direct inflation. The Fed has committed so far to buy up a bit more than $1 trillion in debt securities from the open market, of which about $300 billion will be US Treasury debt.

That counts as money being printed. It also is why the middle and long ends of the yield curve aren’t far steeper than they are. I’ve heard people say that without QE, the 30-year bond rate would be closer to 10% than to the roughly 4.2% it’s at now. That’s an extreme view, and there’s no way to know for sure, but there’s at least some truth to it.

The bottom line is that the financial system, and the global economy, face powerful deflationary pressure that continues to this day. The inflationary activities being undertaken by the Fed and other monetary authorities are doing little more than keeping up with the deflation.

It’s still an open question which side will win.