Crocodilian

Deflation: The 800-Lb. Gorilla in the Room

"Summing up, deflation first, followed by inflation. Details on timing to be determined. Next question."

The question then becomes: Why isn't the market discounting the future inflation? I don't argue with your logic, but am puzzling over why we're not seeing a market response consistent with that scenario.

One possibility would be: in the short term, there is a real danger that the system can "break". That is, if you're afraid of bank failures and Madoffs, you hold Treasuries because even if your broker goes bust, your Treasuries (but not necessarily your money market fund or your cash) are protected. Another guess would be that the liquidating forces of the unwind are so massive as to dwarf investment buying of the "inflation later" theme.