The inflationists are missing the boat. In fact, those in mortgage lending mess are right on the money, not making loans. The only outfits making loans are the ones controlled by the government. That won't last for long as debt is going to continue to pile up as trash on the curve. The inflation worm turned a long time ago and the money machine was destroyed with the housing bubble. Inflation to maximum potential has occurred.
Right now the Fed is buying mortgages and to some extent treasuries. The act is being called printing money, but at this time I see it as changing who holds the debt. The money was already printed by the banking system, spent bullets. The problem we face is debt not inflation. Now the Fed owes for what someone else owes, to someone who isn't even involved. The link is debt and liquidity,not printing money. The liabilities have to be solved. There isn't any running off the roll of toilet paper, only another note for another note.
We have had a bad stock market for 10 years now. IN fact, if you go back to 1968 when the SPX first crossed 100, the dividend yield was right on 3%. If the SPX was priced to yield 3% right now, it would be priced at 732, according to SPX data. The Shiller data from June 68 showed a price of 100.5 and the CPI divisor to August 2009 was 6.22, meaning to keep up with inflation the SPX would need a price of 625. This means that if you were constantly invested in the SPX for the past 41 years, you would have beaten inflation by 17% total, less than 1/2% per year. BBB bonds did better than that. In deflation, the market is going to fare even worse, as the relative volume of business is going to fall. Back to the 1929 peak, the SPX would adjust out to 395, still less than a double over 80 years, evidence the real return on stocks over an entire cycle is less than 1% over risk free.
Knowing the SPX has the potential to fall 80% or more, I can see that people are about to get tight. Those that don't eat at home are going to be looked at as spendthrifts. Debt is going to get tighter and tigher. There is almost no way we don't deflate and this depression will be longer and harder to exit than the last one.