"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered." Thomas Jefferson, 1791

We've seen deflation so far in the US recently. IMO the euro is more prone to hyperinflation because the European banks are more leveraged than their US counterparts. As was the case in Iceland, large European banks have assets several times their host countries' GDPs. The recent European bailout pledge amounts to GDP ratios are a lot higher than the US bailout to GDP ratio.

Hmm US wages are a multiple of Chinese wages unless China allows much stronger wage growth US wages are not going anywhere.

Also of course you have completely forgot about oil monetary inflation in a peak oil environment can and will be reflected in the price of oil putting a huge damper or the real economy and leading to even more debt defaults.

Salaries in many parts of the US would have to double to even match todays housing prices much less inflationary induced price increases. Rents in most bubble areas are 50% of the mortgage on a equivalent house and falling. The supply of houses that don't cash flow as rentals is huge. You would somehow have to eliminate this imbalance first to even begin to see rents start increasing.

Inflation like your thinking is not gonna happen all this money thats being poured into the system will disappear into writing off defaulted debt and continue to do so for the foreseeable future. Peak oil ensures that if any real monetary inflation occurs it will just result in higher oil prices and higher overall commodities prices.

If and when wages double to handle the current inflated housing prices then we can talk about a wage/price spiral.

The ability for the American worker to demand higher wages right now is zero.

I know that everyone loves the concept of hyperinflation any day now but the reality is that with peak oil we simply can't inflate our fiat currencies since at the end of the day they really are not fiat but tied to economic growth without growth you cannot inflate. No one can pay off old debts much less new debts. Also in a inflationary environment interest rates increase given the current debt load rising interest rates simply trigger more defaults and more risk.

Government printing presses or real monetary inflation only work well for isolated economies sure once the American economy becomes isolated we might inflate but when your global like we are today you get deflation and depression just like what happened the last time the global economy collapsed.

Sometime during the first half of the year a lot of people started to think 'this is it' when everything seemed to be going through the roof -but look what happened: demand got killed (along with the economy) and we see a major slump in commodities.

Now I've been saying for a while that commodities (inc. oil or possibly driven up by oil becoming scarcer) will increase but having seen the up-up-up-down of the last few years I'm not so sure...

So my question would be -how can we be sure that we are in for a bout of Inflation that will last and not get 'cut in the bud' by a recession/depressionary cycle?

-In your example you could find yourself stuck on a 10 year 6.5% fixed while trackers are humming along at Base Rate of 2% (in response to the depression caused by high oil prices perhaps) + 0.5% = 2.5% ... You'd be feeling pretty silly then wouldn't you?

My mortage buddies are telling me that trackers are currently some of the best deals and if we are going to get rate cuts things will only improve.

Nick.