The unstoppable force of inflation seemed to be hurtling towards the immovable object of deflation.

The unstoppable force of inflation seems about to smash into the immovable object of deflation.

Bill Bonner writes that the markets are in an uncomfortable and potentially explosive position.

Poor Freddie (FRE). The federally-chartered lender announced a loss of nearly $5 billion. Sister Fannie (FNM) didn’t get away either. Her shares went down 22%. When you lend out money recklessly, you gotta expect trouble.

Thanks to a mixture of good luck and bad management, the United States was able to heat up the entire world economy. But now, it’s in hot water itself. Americans are up to their necks in boiling debt while Wall Street has its vaults stuffed with the kind of debt that sets off Geiger counters.

Private firms bought companies from the public, pimped them up, loaded them down with debt, and sold them back to the very same public market investors.

The money market funds have put a little of their cash into SIVs, Structured Investment Vehicles. For the first time ever, the funds may “break the buck,” meaning, they might not have a dollar’s worth of assets for every dollar investors gave them. This would be a big disappointment to many investors; they gave their money to the money funds because they believed they were ‘safe’...and they were hoping to get their money back in the same condition it left them.

Putting more Asians to work does not automatically increase the supply of farmland, or what grows on top of it, or what lies underneath of it. While increased industrial output has managed to hold prices down for manufactured goods, the rising supply of money has forced up prices for things that don’t come out of factories.

We had it all figured out. Finally, we said just 24 hours ago, "The tide has turned." Once the tide has turned, there is no point in arguing with it, or even analyzing it. The liquidity is going the other direction; that’s all there is to it. So what happened? The Dow rose 319 points.

Mass sentiments take hold of investors like a rabbit’s dodging reflex. It is instinct at work. When an investor sees his fellow investors take flight, he straps on his wings too. When he sees them calmly buying more stock at 20 times earnings, he buys too. This herd instinct is fatal to investors.