"If deflation is such a good thing," our friend Mike 'Mish' Shedlock wrote in the Daily Reckoning last week, "why do central banks fear it?" His comments were picked up the Mises.org site this morning.

Bill is traveling back to London this morning. So here we steal a moment to make a small prediction for 2006: the big "d" - deflation - is going to be coming out of the mouths of the financial commentators a lot this year. Why?

"One answer is because deflation is debt's worst enemy," writes Mish. And we've got a heck of a lot of debt on our books to worry about.

Frankly, we didn't realize how pessimistic we were on the economy until we had our weekly chat with radio host Charles Goyette this morning on Air America. But the reasons stare us in the face this morning like a cold cup of coffee after a heavy night of champagne and holiday noisemakers.

The 2-year Treasury pays more than the 10-year note as of last Tuesday, which means the "yield curve" is inverted. And investors view short term U.S. debt with more suspicion than "long-term" debt. It could also mean we've already veered around the bend toward a nasty recession. Uncle Sam, who's been binging on credit for some time now, is barreling for a head-on collision with the Mack truck known as debt deflation.

"If asset prices and wages fall," Mish reminds us, "people can not possibly ever pay back what they owe. Banks and credit card companies don't seem to like that state of affairs. Is that a problem with deflation? No, that is a problem created by a reckless lending, easy credit, and endless cheerleading on CNBC every time consumer spending rises and people sink heavier into debt.

"...inflation benefits those that receive money first: the government and banks. The former is via automatic tax increases not indexed to inflation (especially property taxes), the latter simply because banks are first in line to receive money from the FED at rates no one else sees.

"By the time lending standards drop so that the masses have access to credit, the boom is well underway. By the time credit is granted to anyone that can fog a mirror, the boom is nearly over. Those buying assets late in the game will eventually be crushed by those selling assets that got in early."

"The time to be bullish was back in October," Jeffrey Saut, an investment strategist with Raymond James, told Reuters this morning. That's when the market was in the throes of a 26-week swoon. Since then there haven't been a lot of ways to make easy money.

Another major deflation indicator will be the domestic car and truck sales for December, due out on Wednesday. This data should be quite interesting, since all the car manufacturers that have been advertising have dropped their prices $5,000 - $10,000.

Santa, for his part, failed to show up on Wall Street this year. All three of the major indexes lost ground in the final week of 2005. The Dow lost a percent for the year. And the big winner, the S&P 500, grew by a meager 3 percent. "If Santa Claus should fail to call," writes the Stock Trader's Almanac "bears may come to Wall & Broad." History suggests that if stocks fail to rally late in the old year, or within the first few days of the new, they will fall in the coming year.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.