U.S. government cash may avert sustained deflation

NEW YORK (Reuters) - Swift U.S. government action to flood the financial system with cash should prevent deflation from suffocating the economy, some of the world's best-known investors told the Reuters Investment Outlook Summit this week.

Recent government reports on inflation and unprecedented signals from bond markets have sparked talk of a return of Great Depression-style deflation, when falling prices discouraged spending and investment and delayed a recovery.

Mohamed El-Erian, co-head of the bond manager Pimco, said that the current recession would be spared such as fate by the government's commitment of up to $8 trillion to keep funds flowing through everything from American households to banks.

It may be a close call, however. The sliding economy and slumping commodities have pushed U.S. wholesale prices down since the summer, and more economists are warning about deflation.

Many bond market analysts say short-term fixed-income markets indicate a brief period of deflation already may have arrived...>

http://www.reuters.com/article/InvestmentOutlook09/idUSTRE4BA6OP20081211

... "may", yeah monkeys "may" fly out of my butt also.

One thing is certain, we will have deflation or serious Inflation, or most likely the former followed by the latter - what we will not have is stability, not for a long time.