ebear, i would make the case that we can have both unemployment and inflation at the same time. there was stagflation in the 70's and i think it will be even worse this time around.

i have no doubt that public spending will go through the roof, at least in the united states. after he was elected, obama appeared on 60 minutes and said he would do whatever it takes to get the economy moving again, and not to worry about the deficit next year or the year after. so even if consumer spending and corporate investment come to a standstill (if they haven't already) public spending will pick up the slack.

with all the work needed on roads, bridges, schools, and all of the other infrastructure that is in disrepair, i think fdr's new deal is going to look like a misdeal compared to the public works programs we are going to see. i only hope spending will go where it is useful, and not just building bridges to nowhere.

i'm not saying that all of this is a good idea, only that i expect it will happen. when some third world country in latin america or asia needs a bailout from the imf, there are always strict guidelines involved. they have to put their financial house in order by raising interest rates, allowing bad businesses to fail, and cutting government spending. those countries are forced to take their medicine by having austerity measures imposed.

but in the united states we do exactly the opposite. when our economy is in trouble, we lower interest rates all the way to zero, we prop up every business that's failing (the bigger the better) and we increase government spending to stimulate the economy. that is not the recipe for deflation. and that's on top of all the other structural entitlements that we can't afford.

you already know about the fund de-leveraging that has trashed the prices of resource stocks and everything else, and i don't know when that will end. but the history of markets in general is that they don't wait for everything to become obvious before they recover. so this recesssion could last even 2-3-4 years, but the mining stocks could turn up next month in anticipation that the worst is over. in fact, some of my stocks have already doubled from their depressed levels in october. i don't do short term forecasts, but at these levels, i would rather be a buyer than a seller of commodities and resource stocks.