"It's still a market, but can never be anything buy a market where supply is controlled."

I don't understand that statement. If the Fed did not try to control interest rates, but instead let supply and demand determine rates (they did not buy instruments to keep interest rates down), we would have a market rate interest instead of a manipulated rate.

"But I do not think that we can conclude that inflation is the way it must unfold."

It's not. We can have a deflationary depression or we can have destruction of the currency (inflation so the money buys less). Two different ways. One way or another the resolution of prior malinvestment has to be reconciled. Two paths that lead roughly to the same end. Different ways of getting there and different winners and losers along the way. Inflation just happens to be the most politically feasible way so I see it as being more likely. Deflationary depression causes massive defaults both private and public, not to mention banking. Not politically acceptable to get re-elected. The hidden tax of inflation is easier to pedal to the public because not one in a thousand understand they are being robbed. Inflation is incremental default via destruction of the purchasing power of the currency. With inflation a different group "pays" that what does with deflation and outright debt defaults.

Problem is with inflation, for it to work its magic with debts and obligations as large as they are now there is a serious risk that once it is started it gets out of control. Out of control is not even the real problem, but loss of confidence in the currency that results from it is. That is what causes hyperinflation. Not printing money. Not too much inflation. It is not regular inflation gone bezerk. It is loss of confidence to the point no one wants to hold the currency. Once no one wants to hold it they get rid of it as soon as they earn it by buying something, anything. Velocity tries to approach infinity. Before its use completely stops the currency still functions as a medium of exchange but fails its obligation as a store of value. In the final stages it functions as neither. Both inflation and deflation cause default on the real value of obligations (as opposed to nominal value), just different means of getting there.

A good example of a currency going into hyperinflation without regular inflation even being a problem is a country facing imminent loss of a war and occupation by the opposing force. A week before the the war ends the local currency functions. As soon as the populace sees the war will be lost and realize the currency will soon be worthless (when the opposing forces introduce a new currency) hyperinflation happens. People would buy anything real (tangible) of value to get rid of the soon to be worthless currency. I use this example to show hyperinflation is NOT regular inflation on steroids. It is a completely different animal. It is caused by loss of confidence, not by printing too much currency. Printing too much currency is very often a contributing factor, but it is not the reason. Hyperinflation usually happens in an economic environment of deflation, not inflation as most would assume. But I digress.

John