consider two cases of restricted supply: That cute little house that over looks the bay bridge with a nice terrace, and an hour of my time as a massage therapist, to give a nice deep tissue massage.

In one case the buyers have $10,000 in their bank account, and have jobs that pay $1000/mo. While in a second case they have $10M in their bank account and each gets $1M per month in salary.

The price bidding for both an hour of my time, and that cute little house will be very different in these two cases. And notice that the low 1.25% loan rate cannot be used to manufacture additional houses or hours in my day which you can buy. So the prices in the second case will indeed be much higher.

Thus prices of many goods track the average savings and income of the population.

This is the problem, there IS a feedback loop in the existing system: easy access to money means bidding up the price for constrained goods, which provides more money to the sellers of those items, which further increases the cycle. Ray Dalio advocates for printing money or not-printing as a way to boost growth during deflationary periods.

The problem with your model is at present prices having a fed with $1M per capita available to loan is that it would overheat the prices on constrained goods. Eventually, I think, prices would rise until the fed’s supply was exhasusted.