I personally see inflation / deflation as a monetary phenomenon. I don’t buy the wage / price spiral theory. We have seen that we can have full employment with low inflation 1990s and underemployment with high inflation ala 1970s.

The monetary expansion in the past few years has been astounding. That money will ultimately chase goods and drive up prices. Who knows how long it will sit around unproductively (in gov bonds). I agree moderate inflation (high single digits) is more likely than out of control hyperinflation. With moderate inflation in 2010 and beyond a good possibility TIPS are looking cheap to me right now as well as TBT.

Financing goes away, which means the notion that something like home equity is as good as cash is a mistake.

Pensions become worthless (and that’s one of those conveniently ignored stories right now).

Stock market upswing on hope of a plan (even if the plan has more holes than Swiss), then collapse.

Negative real interest rates, Government lying about inflation, etc. Government becoming a bigger and bigger part of the economy.

Any of this sound familiar?

Hyperinflation is like a tsunami, by the time you see it – you’re toast. Time and time again, it catches “smart guys” by surprise.

I think the deflationary dream is being kept alive by the vaporization of wealth that has occurred across the board. I think that vaporization continues for a while. So, we will continue to see what is perceived as deflation, until the moment when noticeable supply destruction occurs (and I think that happens in food first). Suddenly granite counter tops won’t seem so important.

Take advantage of this deflationary psychosis, and buy some things that will get you through a storm.

But I think that, so long as we still have the ability and will to throw out leaders who are screwing up, that we will *not* follow Argentina and Zimbabwe toward the example of Weimar Germany.

That’s why I see us as being “stuck” in stagflation, caught between unemployment and moderate inflation (i.e. not hyperinflation) — both around 10% — for a *very* long time. We may oscillate between leaders that fight inflation with high rates and those that fight unemployment with low rates, with a few flip-flop types that try each, for two or three decades.

Back in 1989, this was certainly treated as (and probably written as) extremist nonsense, no one would believe that we would allow things to have progressed so far down the road to doom as we have.

But there you have it, Truth is Stranger than Fiction.

We will have deflation until foreign creditors draw a line in the sand and say “NO MORE” to our soaring bail-out spending. Then the dollar will resume its plunge, and commodity markets will blossom anew, sparking serious inflation in the midst of shy-high unemployment.

Raising rates to combat the inflation (compressing the demand for money) will go against the goal of the government’s being the employer of last resort (unless the government manages to figure out how to give jobs to the unemployed that produce output in excess of the debt being used to pay them), and we will live in the House of Stagflation forever and ever, world without end.

Over the long haul, inflationary expectations imply full employment, or something approaching full employment. That just ain’t gonna happen. Yes, we will have inflation, but it will be entwined with sky-high unemployment.

And that’s a bit different that merely “just” an inflationary outlook.

Seems to me that calls like that require a time frame or else are fatuous. I, for example, expect the sun to go supernova.