"Longer term I think we are guaranteed inflation in our futures and treasures are a bad bet."

I can't agree that inflation is guaranteed. Despite massive intervention by CBs around the planet, economies simply can't get kick started. In fact, we now have the following:

• Higher deficits
• Higher unemployment
• Lower tax revenues
• Increasing bond rates (ex. USA)

As a result, sovereigns are now being forced to simply cut spending and that is deflationary.

The wild card is another round of wild stimulus by CBs to try and kick start their economies, which I anticipate because politicans have no brains (see below) ... but I see two problems with that:

1. Track record of failure gives little reason to believe it will work
2. Another failure could lead to a significant crisis of confidence, leading to hyperinflation

Remember, hyperinflation is not an extension of inflation. Inflation is a supply / demand issue in which an increase in prices results from overspending. Hyperinflation is a confidence issue in which a currency becomes all but worthless as people lose their faith in it.

I don't see inflation being a problem anytime soon. There is far too little spending for far too many assets. Case in point, there are 11 MIILION homes underwater in the United States but demand is nowhere to be seen and prices continue to fall.

I just don't see hyperinflation in the cards for any major currency over the next 18 months. That would require a failure of at least 3 more massive stimulus programs.

Conclusion - As of this moment, deflation is the most likely scenario in 2012. It is what actually needs to happen because the price of most goods on this planet are a result of a credit-fueled binge over the last 50 years. The fuel is now gone.

Unfortunately, as I stated above, politicians have no brains. Once deflation rears its head, you can count on every stimulus trick in the book. I don't have confidence any further stimulus would work and I fear that failed stimulus could lead to loss of faith ... and let's not talk about anything after that.

Regards,

George