My opinions (and that is exactly what they are, opinions) are as follwos.

I think we will have some major assets classes such as housing and commercial real-estate that will continue to drop in price. Bubbles burst are hard to re-inflate.Label it however you like.

The attempted re-inflation of housing markets and associated liquidity injections will create bubbles elsewhere. Government bonds may be one of those bubbles. I see health care, food and many other day to day living expenses either staying stable at best or increasing in price. Label it however you like.

In the one to 5 year time frame I am firmly in the inflation camp.

Those who say the Fed is out of bullets and CAN'T create inflation are smoking funny weed. Imagine electronically depositing one million dollars in every bank account of tax filers, for those without bank accounts they get 100 dollar bills and for the illegal aliens they get a bonus million for just being nice guys and underprivelaged. You think that would not be inflation? You think prices would not rise on goods? The Fed can create inflation. The only thing standing in their way is congress. Nuf said? A wall of Marshmallow's in front of a D9 dozer would be more of an obstacle than congress stopping the Fed printing money.  Inflation can always be created if desired if there is nothing backing the paper, I don't care how much credit destruction has taken place. Another way the Fed could do it is just quit paying interest on the excess reserve funds banks have at the Fed or even put a negative interest rate on it (charge the banks to leave their excess reserves on deposit). Banks would find lots of "creative" ways to loan that money out instead of taking the current government guaranteed profit they have right now. I really question if the Fed expected the banks would loan the money out to begin with. I have to question if it was just talk to soothe the sheeple to make them thing the government was "trying" to do something for them.

In a true deflationary situation, holding cash would be the best thing you could do. Having "things" go down in price has the exact same effect as if you get paid interest on the money and "things' stay the same price. In either case the dollars you have will purchase more "things".  "Cash is King" in deflation. If you are talking housing prices or commercial real-estate I would not argue that holding cash might be a good thing compared to investing in those asset classes right now. Any other asset class or goods imaginable I cannot fathom that a dollar will buy more of it 5 years from now than it will today. I just can't imagine any scenario where the dollar will be worth more down the road than it will now. And that is what it would have to be to be deflation. If you think your dollar will buy more potash, Cheerios, corn seed, health insurance, automobile, gas, Diesel, sugar, tires or anything else five years from now than it does today, then by all means you think we will have deflation and cash, treasury bills and treasury bonds are the place to be.

I don't believe it for a minute that my dollar will buy more five years from now than it will today. And that is what you have to believe if we are going to deflate.

If Ben Bernanke is kicked out on his butt and Paul Volker is named Fed chairman and given unlimited support from congress, I will start to worry about deflation.

John