Reasons for doubt

    What's keeping inflation worries on the front burner is the widespread disbelief that the United States and other stimulus-addicted governments possess the fortitude necessary to take the punch bowl away. An April Gallup poll found that 55% of Americans were "very concerned" about climbing inflation, while a June Bloomberg National Poll found about the same percentage believed the deficit was "dangerously out of control."

    The Congressional Budget Office says that the federal debt should hit 62% of GDP by 2010;it projects it to surge to 185% by 2035 if planned spending is realized. And the U.S. is not alone in nearing the breaking point. In May, the IMF estimated that the average general government gross debt ratio of advanced economies, "which has already ballooned by close to 20% of GDP since the onset of the crisis" will "rise by a further 20 percentage points by 2015, reaching about 110% of GDP."

    To say this is unsustainable would be charitable. But who wants to be the first politician to pull the plug? In a July interview with Charlie Rose, Treasury Secretary Timothy Geithner said that the Treasury markets were not pushing the U.S. to take its medicine now, because everyone knows the government plans to tackle the deficit. "[T]here is a lot of confidence, not just of Americans but investors around the world, that we're going to find the political way to do it," Geithner said. "There's no alternative for us. We'll be able to do that."

    But jawboning does not make it so. That's why gold-bugs are jumping and why there is still plenty of talk about "Helicopter Ben" -- a reference to Bernanke's belief that deflation can always be solved by flipping the switch on the government printing press, which allows the government "to produce as many U.S. dollars as it wishes at no cost."

    The printing press can also come in handy when dealing with unsustainable debt, if the debt is in your own currency. Looking at the United States' "debt trap" in a February market letter, Marc Faber, the prescient Swiss financier commonly known as Mr. Gloom Boom Doom, laid out the government's problem succinctly. With tax receipts down and radical spending cuts seeming off the table, the United States has only two avenues of escape -- default or reduce the debt by inflating it away. Faber is betting the United States will ultimately take the Weimar route and turn on the presses.

    The pain will eventually come, and when it arrives there is nowhere for the average citizen to hide. Such as it always was, Parsson might have added.

    "Since those dim beginnings in the forests of the Stone Age, governments have been perpetually rediscovering first the splendors and later the woes of inflation," he writes. "Nations can always clearly see objectives they would like to reach, such as fighting wars or being prosperous, and they are often willing to spend whatever is necessary to reach them. They are not often so willing to pay up."