When it comes to economics and what is coming I like to constantly challenge my believes and have been doing a lot of reading on the inflation/deflation debate.

As far as investing goes this is the most important question for the foreseeable future.

We are currently in a deflationary credit contraction but the government is doing everything it can to fight it by debasing the currency that everything is priced in. Two opposing forces. Which one will win?

I think ultimately it will depend on the governments resolve.

If they are determined enough then it will be hyperinflation and a complete loss of confidence in the US$.

If at some point they capitulate to save the system then it will be deflation.

Physical gold will do well in both cases because it is an alternative form of money. The gold companies will do better in a deflation because their costs will come down for all their inputs but gold will be going up in real terms. The downside here will be tax starved governments and what they may do???.

I think it is too late for a benign outcome and we are in the lull before the second part of the storm.

Thoughts??