We are not seeing price rises, because we are in a different stage that happens before the money starts moving.
Obviously, after the moderately large stimulus, one would expect that the increase in money supply filled into the coffers of private individuals and other parties would also follow a movement of that money.
That money isn’t moving. There are businesses in the United States with several billions of dollars in cash balances which have not been used for any purpose. Some just sit on $30 billion of reserves.. That’s perhaps because the current uncertain environment, with various reforms in labour markets (through reform in insurance), capital markets (through financial reform), international trade (through new tarriffs) and the general direction of policy is forcing them to hold back new investment or increased production. But that only has very little to do with it.
Consumers resist price rises less when they come in the form of lower quality goods. Wherever the money is flowing and pushing prices, consumers start saving more to meet those needs; savings which are further motivated by the pessimism brought by recession. This situation again holds back price level change. While business would make new investments in fresh assets, they have hitherto been recording profits on the historical cost concept and depreciation, with inventories valued on first-in-first-out basis. They have overstated their profits, and have ended up consuming capital - they now find that they have not reinvested enough to meet working capital requirements and asset replacement needs. They now need to save far more money to be able to make that investment.
The reluctance to invest more or increase spending means that they have to keep up the same level of production from outdated assets as close as possible to the same level of quality, even while the prices of raw materials rise. Thus, they have forced workers on overtime, employing people only on a temporary basis, and running on much lower margins. The productivity per worker is not rising far enough to allow for employing more people - as we see from rising unemployment figures.
However, that money will start moving. That businesses and households are sitting on their cash means that they have merely deferred their needs towards the future. The results of the recent monetart and credit expansion will be price inflation, which can not be coped with by masses of people producing less and earning less. That, as it may be, is a long-term thing. The actual effect of monetary expansion is not shown in price rise - it is rather revealed in increasing inefficiency, obsolescence, lower quality, and worsened standards of service and honesty from flesh-and-blood people.
The so-called liquidity trap is merely a means towards making investments in the future, by favouring long-term production over short-term consumption. Since the wrecking ball is now first put on production, because consumption is low, when consumption comes back up in the future, there will be less production to meet it.
By all means, your friend can continue citing empiricism, since he has not discussed what flesh-and-blood people actually do, and instead hides behind the unfalsifiability of statistics i.e. figures that only have hundreds of causes, and not those causes that people choose from foregone conclusions.
but that’s it. It takes someone like Krugman to paint his case in terms that suit him but it doesn’t make his analysis correct as he is framing the question incorrectly.jpg){kind=link}