A lot of people who believe we are on the verge of hyperinflation probably misunderstand what Friedman meant. They simply believe an increase in monetary base will raise the price level. However, if our demand for money is so low that the newly-created money is not used, then inflation never arrives.
Let's look at the very simple quantity theory of money equations:
MV=PY
P=(MV)/Y
This equation means price level will rise as money supply increases only if the velocity does not fall in the given income level. Usually, all these variables change simultaneously, so this theory is a little problematic to apply to our real life. However, since the last few years the U.S. real GDP has grown very slowly, it is a very good chance to conduct a natural experiment.
The Federal Reserve has since Q4 of 2007 increased its monetary base by three times. As a result M2 has risen by about 38%. If velocity of money had not changed, assuming Y constant, the price level should have risen by 38%. However, we haven't seen that and will probably never.
The velocity of money has slowed by about 22% during the same period. Plus, the U.S. Real GDP has risen even though it is not such a good performance. Therefore, huge inflation has not arrived here and it doesn't seem to happen sooner or later.
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