Inflation Risk?

I keep struggling with the idea that we are going to have run away inflation because the government is running the printing presses at full speed.

I tend to be in the camp that is against the bailouts, but it is not because I think run away inflation is on the horizon. I don't. I think we are headed for a deflationary debt spiral that has just begun. This is very similar to what happened during the Great Depression.

Runaway inflation is a possibility if other countries start dumping treasuries and cause a massive fall in the value of the dollar. But they won't. Why? Because America is still the pack leader. If we go, they go. Our consumer economy has been THE source of BRIC growth. They didn't became enlightened capital producers in the last eight years. They just sold us lots of stuff. I would back this up with statistics, but the BRIC countries LIE about them. So instead, if you want to do your homework, overlay a chart of the S & P 500 with charts of the Brazilian, Russian, Indian, & Chinese stock markets since 2001. If you don't want to do your homework, know that I did, and trust me on this one.

See, typically when governments print tons of money to inflate their currency it is because they are deeply indebted to their creditors (usually other countries) and they are so poor they have no other way to make the payments on their debt. We do have a lot of debt. I just believe our debt is still a much better investment than just about anything else in the world right now. Looking at the price of Treasuries, the market agrees with me (I should say I agree with the market).

The Fed can also take money out of circulation just as fast as it puts it out there. At the first sign of the end of the debt driven deflationary cycle we are in, the Fed can quickly reduce money supply.

The asset price deflation we are facing is a much larger threat to our economy in the near term. Don't get me wrong - I am not a bailout fan at all. I just think deflation is the biggest threat we face.