Two Shakes of a Lamb's Tail

Our fractional reserve system "creates" money whenever a bank loans. If I deposit a hundred thousand bucks in a bank and the bank loans out eighty thousand in a NINJA loan, there's a hundred eighty thousand floating around when there was really only a hundred thousand to begin with.

But now, the person who took out the eighty thousand loan defaults on his mortgage. Walks away. Leaves the keys in the mailbox and moves in to his brother's guest bedroom, eats his food, burns his furnace, and plays his niece's video games all day. The failure to pay back his mortgage is instant money destruction, flowing back into the black hole from which it came. If the money supply shrinks faster relative to GDP, we have deflation.

That's what I think is happening now. It makes no sense to carry debt, any debt, in a deflation. But do you think we're gonna flip right into inflation in 2009, what with Helicopter Ben "creating" hundreds of billions of dollars faster than two shakes of a lamb's tail? Anyone carrying a crippling, crushing, hopeless burden of debt (i.e., Uncle Sam, state governments, local governments, municipalities and most Merikans) always does better, much better, under inflation. It makes sense that we might find a way to just inflate our way out of our problems.

If hyperinflation is right around the corner, I'd prolly re-finance and carry out my energy efficiency directives now, to allow inflation to erode my debt before I have to pay it back.

What do you predict?