1970's Style Growth

Dark bands represent business contractions (recessions).

So here's my theory, for what it is worth. Since our economy is so leveraged to debt, deflation is always going to be an option. First it was the dotcom bust. Now it looks to be housing causing the problems. Each time the Fed "protects" us against deflation, they'll be adding more inflation for the next wave. I would therefore expect inflation to pick up in the long-term. Further, I wouldn't expect our system to be any more stable than it was in the 1970s. It has had plenty of time to become unstable (thanks to the extra leverage we've picked up since then).

Just how many Nobel Prize winning economists are running hedge funds these days? It only took two to take down Long Term Capital Management. Let's hope that was just a fluke and that Warren Buffett's talk of derivatives being financial weapons of mass destruction was just a joke. *sarcastic eye roll*

Source Data:
CPI-U
3 Month T-Bill
10 Year T-Note
Regular Gasoline Prices
National Bureau of Economic Research, Inc.