Well I've been mostly wrong to date so don't know if what I say means much. LOL

But even idiots have opinions, so here goes.

Greenspan all through his tenure was digging the spurs into the flanks of the economy pony, making it go faster, even though it was tired and really needed a rest. But that was nothing compared to what his successor was to do.

The pony, being tired and near collapse, was about to fall (big banks failing). So Bernanke not only got a pair of the spiked spurs on, he gave the pony big injections of steroids to make it go, even if it did not feel like it.

I thought Bernanke would succeed. At least for a short time. I thought we would have one last blow off top inflation. We could still get that, but it is looking less likely. If the Fed follows through with reducing the amount of money pumping and actually gets to the point of stopping additional money printing later this year, the blow off inflation may not come.

If however, at some time later this year or next the economy really goes kaput (official economics term) and they bring back stimulus with both guns blazing, then this may have only been a lull in the storm. The Fed is capable of offsetting any deflation the economy can throw at it, if only it has the guts to do it. If the economy starts tanking badly, the politicians will not only allow it, but demand it (my opinion). As well as most voters.

As far as answering your question about when reflation happens, reflation is what the Fed has been trying to do all along. They have succeeded in as much as the true money supply has not really fallen. We have not had a lot of falling prices that would normally be associated with a deflationary recession. We have had about everything else, but not falling prices (except certain capital goods). The reflation has not come evenly, but in general they have succeeded to offset the falling money supply caused by credit contraction with newly created money going into bank reserves. The banks, not wanting to loan to shaky customers, instead uses the capital base of the excess reserves to leverage speculattion in derivatives. Thus we have certain capital asset classes prices going up without any fundamental driver other than too much money chasing it.

The deflation offset of the inflation that has happened over the last 40 years has yet to happen. The malinvestments that it has created have not been allowed to fail and find an equilibrium. We are no better off now than in 2007, and in many ways worse off. The derivatives market is larger than ever, the TBTF banks are even bigger yet, governments have yet to quit spending beyond their revenue incomes so deficits keep getting bigger, bigger and bigger.

Nothing was fixed. We just dug the spurs into the pony even harder to try and get a last gallop, a last spurt of energy out of him.

The collapse is yet to come.

The only thing left to see if if it comes naturally (deflationary depression) or artificially (hyperinflation via the destruction of the currency).

What could have been a very bad recession, because of the insistance of the Fed to reflate the economy, is now going to turn into something much worse.

An opinion only from an uneducated dirt farmer. Take it for what it is worth.

John