I love all the back-and-fourth between the authors here on Seeking Alpha. HYPERINFLATION!!!!!!!!!!!!!!.........DEFLATION!!!!!!!!!!!!!!!........well guys, your both right and your both wrong. The inflationist's make the argument that with all this money the Fed is "printing" that we will fall into a hyperinflationary spiral. This may be true in the long run with all the recent calls by China and Russia for a new global monetary standard (which I do feel the dollar's days are numbered) and all the major currencies hitting new high's against the dollar every day however the dollar will stay the global reserve currency as long as commodities are priced in dollars. The inflationists point to money printing as the death nell for the dollar as evidenced by the explosion in the monetary base
Another argument I don't often hear made is one that when it comes time for Bernanke to raise rates he won't have the political will to do so because it will make the interest on the federal debt skyrocket. Interest on the federal debt is just under $200 billion per year and thats with 0%-.25% rates. research.stlouisfed.org/fred2/graph/fredgraph.png
It is also true that we have seen/will see price inflation in commodities (i.e. oil just under $80/barrel, gold at $1060/oz. this however is not due to demand as the global economy has not recovered yet, this is due to a "store of wealth" mentality.
Now the deflationists argue that there is much too much slack in the economy for us to see inflation anytime soon they point to capacity utilization (looking at the Cap. Utlz. graph according to the deflationists we should have had deflation since the late 70's) and available credit to consumers.
Both these graphs alone prove that consumer demand will not return to pre-bubble levels for some time especially with unemployment at 9.8% (conservative estimate). These two factors (money printing and a extremely weak economy) set the stage for stagflation. We will end up with two scenarios 1. Bernanke & co. will keep interest rates at all time lows "for an extended period'' which will evitabley lead to double-digit inflation or 2. Bernanke & Co. will raise rate when necessary but in doing so will not only choke off the economy but raise the interest on the federal debt to unpayable levels. If Bernanke's actions are any indication of the future I fully belive we will see the first scenario play out just like the late 1970's ( X and Y Gen's, ask your parents). I believe Bernanke will be this generations George William Miller. Hopefully when all this comes to fruition the president will appoint Paul Volcker as chairman again (if that does happen though, pay off your credit cards now).