The Plague

Deflation is here. Bloomberg reports "Consumer Prices Drop 1%, Most on Record."
Year over year inflation is at 3.7%. The Fed is out of ammo, as the effective funds rate is almost 0%. Very soon, Bernanke will have to open up another can of alphabet soup for some more nifty ideas. Unfortunately, whatever he's done may have prevented collapse, but it's just slowing down the damage. The economy is nowhere near turning around.

Go Bonds! In fact, I'm thinking of buying more, as a hedge against Congress letting GM fail. Housing starts are now under 800,000 annualized. That's a 60% drop from the peak.

For a visual representation of deflation, see the link below:

http://www.youtube.com/watch?v=kcArEEvQZ-M&feature=related

skip to 2:40 for the good part.