Treasury Bubble?

All asset bubbles have now deflated. Oil is below $40, the S&P hit the 700's (Dow hit the 7000's) and home prices continue to march downwards. The same thing is happening worldwide: worthless land in Eastern Europe; volatile currencies in America; layoffs in Asia. Toyota has its first operating loss since 1941. Many excellent bonds are yielding double-digits and stocks trade at fairer prices.

But right next to that carnage we find yet another potential bubble. This time the talk is about a treasury bubble. The arguments as to why it's a bubble are found all over the place and have been discussed for years. Massive deficits, used to fight the economic crisis, must eventually result in too much inflation. The timing for this inflation should logically be the bottoming of consumer confidence levels. The counter-argument says that we've just recently switched from inflation to deflation, we'll have this deflation for a long while and it will be so powerful that it'll overwhelm the arguably small deficits.

So which side is right?

I don't know about the readers, but personally I've seen enough bubbles to recognize the pattern of rising prices and arguments that rationalize the rise. The same pattern is here again - this is a bubble. While I do believe that we will see deflationary pressures for some time, treasuries are overpriced. Who wants to lend money to the U.S. government for 30 years at 2.6% ??? (especially when corporate bonds of some very solvent companies are yielding 8-15%?).