I like this guy called "Goldrunner", who regularly posts on the Gold Eagle Gold Forum. He always has a fresh and basic look on things. He basically argues that the break down in the longer dated Treasuries will unfold an inflationary spiral, because it will bring supply and demand of money back back to reality and the dollar down.

"Leo Tilman, president of strategic advisory firm L.M. Tilman & Co. and author of Financial Darwinism, thinks that it will be difficult to reflate the economy, it's premature to bet on inflation."

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Bike, no doubt it will be "difficult to reflate the economy", in fact, it will be impossible in the face of the debt already accumulated. But, that is no reason to not expect inflation since the inflation coming/ here is not dependent on reflating the econommy, nor dependent on re-generating the leverage of the credit mechanism.

I have a question for all of those deflationists who push the notion that the we cannot have inflation because of the lost leverage and the lost credit in terms of dollars created by the fractional reserve baniking system with the popping of the credit bubble. Markets always get back to their fundamentals or basics, the basics of supply and demand.

If the "supply of Dollars" increased so massively due to the credit bubble, then that supply tsunami should have sent inflation through the roof, if that is indeed how it all works. WHY DID IT NOT? Now, if the massive bubble in credit did not effect a massive rise in inflation on the upside, then why would the bursting of said bubble now "cause" deflation? Can you have your cake and eat it too?

The argument simply makes no sense at all.........unless gimmicks were used to temporarily "change the psychology" of the markets to some extent. Even so, in the end it will make no sense at all, anyhow. The ramp up in inflation going forward will not purely come from Dollar printing (currency inflation) since the Dollars are already out there............only smothered with gimmicks from "movement." For instance, Dollars have remained locked up in the oil trade as the world reserve currency, tied up in Treasury debt as the Fed has periodically played the "deflation card" all through the years of the 2000's, and psychology has been tempered by the tainted understated CPI. But, all of those Dollars are set to break free as the US Government takes on the massive debts from the bail-outs on top of the massive debt already accumulated, foreigners move away from the Dollar in the oil trade, the massive growing debt causes investors to flee the government debt in the face of the above, and the value of the Dollar falls.

I am not so sure that in the end the derivatives have not net-net "neutered" the inflation rise with the credit bubble, and the deflation in the reverse......leaving only the net-net increase of printed dollars in the end, along with the net-net need to continue to print massively more dollars. Nowhere in here is a rising economy any crucial part as it is all a Dollar inflation issue in response to the massive deflationary backdrop that we entered into the normal K-Wave part of the cycle under. The rest is all smoke and mirrors.

The change in psychology in this situation will likely be dramatic, and all it needs is a nudge in the right direction, now. All we need to see is the longer dated Treasuries break downn on the charts and the value of the dollar start to fall. From then on, all the effects of inflation will become self-fulfilling as the supply/ demand metrics return to reality. DeCarbonell (sp) came the closest, I think, when he termed it as a real distrust in Dollars going forward. In reality, it will be a breaking of the gimmicks that prevented nature from taking its course already........a natural loss of trust in the paper Dollar supply and future supply needs. The same is true of the late 70's, BTW, only this time the factors will just be much stronger.