ebear, i think the die was cast in march, ending the inflation debate forever. there were subtle clues long before that, going all the way back to the appointment of bernanke as fed chairman. if we were going to liquidate much of our banking industry (and others) and liquidate debts, and endure a long, deep recession, bernanke would not be the man at the helm.

let me hasten to add that there is always the potential for a deflationary depression. all that is necessary is for the fed to refrain from propping up the markets (credit, debt, equity, everything.) if the government stood aside, we would see an economic crash almost immediately. and by that i mean a global economic crash, not just the united states. when the american consumer stops spending, japan's auto industry is in trouble. china's growth rate drops below the level needed to keep people from rioting in the streets.

that is why it won't happen. the fed and the treasury will move heaven and earth to keep the system from collapsing, and that means more money printing, which was made plain and clear from the announcement in march of quantitative easing. the money is not circulating widely yet, which is why most prices have not advanced significantly.

but it was clear as early as last fall, when the markets were staring into the abyss, that the government would not let the system fail. there was a run on the money market funds, and the financial system was only hours away from total failure, when the government stepped in to guarantee everything. now there is no choice but to continue down that road, to the extent that the guarantees total nearly $13 billion, almost the size of the entire united states economy.

you can't just double the size of the economy and not have it show up in higher prices sooner or later. workers may not be able to demand higher wages due to high unemployment, but there is so much money sloshing around that devaluation of the currency and higher prices are inevitable. something will be trigger. it could be a country on the other side of the world deciding to cut its losses, and dump its t-bonds. it could be the adjustible rate mortgages you mention resetting, and requiring a new round of the fed buying debt to keep long-term rates from rising.

it is important to note that we do not need economic growth to trigger inflation. the 1970's were a time of recession and inflation, and commodities did very well. this time around we are loaded with debt, we have outsourced much of our industry, and those commodities are a lot harder to find and extract from the ground.

the government has chosen inflation over deflation because they know deflation is a disaster, and they think they can wring inflation out of the system later as they did in the 1980's. but they are wrong. gold, silver, oil, gas, and food cannot be printed, and they will retain their value. as long as real interest rates are negative, commodities will be the best sector for investment.