Paulson Betting on Double Digit Inflation by 2012

Excerpt from a Zero Hedge article about a Paulson presentation:

3. Bonds – The purchase of long-dated bonds, either treasuries or Corporates, should turn out to be a horrible trade. Rates are at record lows and the economy is turning should continue to churn higher. Paulson expects roughly 2% GDP growth for both 2011 and 2012. Quantitative easing should contribute to significant inflation over the next few years, with inflation possibly hitting low-double digits by 2012. This is bad for the 10- and 30-year and bad for the USD. The USD should fall and the yields on long-dated US Treasuries should rise. Paulson has been buying 5 and 7 year calls on the 30-year bond yield.

I think Paulson is wrong about this. I am expecting deflation to continue. I still have my three reasons why inflationists are wrong:

(i) they in a crowded trade with barely any opposition, and (ii) inflation would be a disaster for the Treasury, and (iii) deflation would suit Treasury's purposes much better.

I can't believe that Paulson thinks Las Vegas is going to return to peak credit bubble levels. The sine qua non of credit bubble Vegas was home equity withdrawal in the sand states.

Paulson and I have very very different mental models of the world around us. How does he explain the failure of his predicted inflation to appear by now? Notice, he seems to be pushing back the timetable for significant inflation to 2012...