As I noted previously, Treasury bonds are set to fall in prices, either because there will be a run on the dollar or a rate hike in Treasuries.

Ron Paul just dropped a video in which he suspects demand for Treasuries will collapse in 2009, at which point the Fed will have to monetize the debt -- i.e. print money.

I have viewed and continue to view outright monetization as an inevitable consequence of the bailout frenzy; perhaps it will be delayed a bit by rate hikes, though it will come (and rate hikes are seeming less likely now, but we'll see). But will debt monetization necessarily result in an expansion of the money supply, currency devaluation, and higher prices?

Economist Mike Shedlock offers the counter perspective:

The Fed at some point will resort to out and out monetization, and that will have the inflationists screaming at the top of their lungs. However, banks will still be reluctant to lend, and consumers and businesses will be reluctant to borrow. In addition, I expect the velocity of money printed to be close to zero and for the savings rate to rise. In aggregate, these are not hyperinflationay things. Heck, they are not even inflationary things.

The whole "banks won't lend, consumers won't borrow, hence the money supply won't expand" theory is not something I believe in, as previously noted. Neither does history, as evidenced by a lack of sustained deflation in the post-gold standard US. Moreover, outright monetization increases the likelihood of foreigners not just refusing to buy more Treasuries but selling those that they own, and dumping dollars as well. This will increase the global money supply of US dollars which will prove to be very inflationary.