Inflation is more likely

Consequences of a deflating housing bubble are immense for the US economy, just recovering from the aftermath of a techbubble implosion. Imbalances in the economy here and internationally are huge, debt burden on households, federal and local goverments are enormous. An implosion in housing is something Federal Reserve would try to avoid at any cost. I sense that we are at the cusp of a major inflationary bust for the U.S economy. Fed has a natural inflation bias - not when it comes to fighting it, but when it comes to causing it.

Source: Minyanville

Everything is well orchestrated right now, the boom in stocks, the hammering of commodities, publishing of doctored data with a deflationary bias, disappearing of M3, Fed & Treasuries operating clandestinely in the repo market ( repos were part of the M3 that disappeared as of March 2006 ). I believe deflationists might be completely wrong, but that doesn't mean I am bullish on US economy.

Consumers are burried in debt and they can't even file bankruptcy under the new laws. Imagine if china stops financing our deficit, it will cause U.S goverment to go bankrupt. The trillions of U.S debt they are holding will become worthless. Just like Chinese have backed themselves into a corner, lenders to american lumpen householders have backed themselves into one. They have to keep lending to the zombies to prevent the house cards from collapsing.

These lenders are hardly interested in collecting the principal back. They just want to collect interest from here to eternity. Not that scam will go on for ever.

You can take it to the bank that Fed is not going to repeat year 1999-2000. Will they succeed ? Money is still plenty. Inflation, Inflation and more inflation. Have you given it a thought.