the social scientist.

Deflation Is Mostly Behind Us

No one has mentioned the velocity of money. the quantity of money means little until it is spent or lent out (to be spent). If gold were the only money and you mine lots of extra gold and just store it, you have increased the money supply (or the quantity of money), but the economy does not expand, and there is no inflation. (BTW, the Vikings then helped the economic development of Europe by spending the plundered gold.) This principle applies to paper money also. A lot of that bailout money is sitting at the Federal Reserve as bank reserves. It's not entering the economy. Also, most of that bailout money has not been 'created' as yet. It has been borrowed.

Yes, inflation will return some day, but nobody knows when. I think TIPs are a good buy, but so does everybody, which scares me. Everybody thinks municipal bonds are a great buy, and have done so for 2-3 months. So why haven't they risen? Could it be because many cities may default on this stuff? And if they do, there is no collateral - only default swaps. Can the mono-lines cover a wave of defaults?

Remember in 2007, that 'everybody' said we should diversify into uncorrelated assets like foreign stocks and commodities, especially because 'everybody' knew that the dollar had nowhere to go but down. that worked well in 2008, didn't it?

In 2000, 'everybody' thought that this time was different, and stocks would go up forever. Now in 2008 we are getting a consensus that this time things are not different, that the government and technology will save us, that economic growth will return fairly soon (God's law of capitalism), and so will inflation. The stock market will recover, because it always has. Did Rome have a stock exchange?

Think independently people. The last year really has been different from the post- WWII era. It looks a lot like the 1930's and post-1990 Japan with new wrinkles that matter. The debt bubble this time was worse than the 1930's. It's global. The populations of the developed economies (and China) are aging rapidly. Oil really is running out, and there are alternatives, but this time there are no cheaper alternatives. (The beauty of oil was that it required so little human energy input to produce vast amounts of energy that we could utilize to our benefit.) Global warming cannot be stopped, and can only be slowed by the immediate cessation of fossil fuel consumption. Of course, we don't know the consequences of warming, but it will require expensive adjustments. It's the rainfall consequences that matter most, although we may lose a few coastal cities.

So, beware of conventional opinion. Entertain the possibility that economic growth is not God-given. Large areas of the world in the past have experienced economic decline (and population decline) for centuries. Sustainable economic growth in the form that we have known it is logically not possible. There are no guarantees that innovation will always provide cheaper alternatives to the resources that we have used up and can't recycle. We don't have to worry too much about innovation increasing food production to keep up with population growth, because world population growth will probably cease by the middle of the century - that's not good for economic growth either.

Humans are evolved to be optimistic by nature, because if you're not, you don't survive long enough to ensure the continuation of your pessimism genes. But look at both sides of reality, and look back further in history than the last 200 years, and you must admit to the possibility that things won't get better, at least for quite a long time. So don't buy-and-hold. Trade to survive, lower your living standards while you can make the choice, and don't expect a comfortable/wealthy retirement. Hell, have a good time now, and forget about retirement. I've been retired for 7 years, and would be content to be poor, except I still have a teenager at home, and a wife who would not be content to be poor.