It is not unlike the 1930s when the US fueled the Depression by implementing tariffs. I don't like it and I can see where this is going. But in the end I see the roll over as inflation has been weakening over the years. What is the real rate of inflation right now? A far cry from the double digits years ago. It thing it is the primary reason that monetary accommodation of such magnitude is causing these smaller spikes in commodities. In the past an 80% drop in the Fed Rate would have caused Gold to shoot up dramatically but Gold and Oil lumbered along at a healthy pace. More than likely because people have felt over the decade that inflation is slowing and until we do resolve all this debt we are not going to get good healthy inflation. More accommodation at these levels to off set deflation will cause an immediate hyperinflationary spike that the Fed will not be able to control. If they try to accommodate like this again I have no more hope for the US economy being able to recover this century. I would even worry about a pause at this point.
I don't think the banks would like to have inflation get too out of control. Since the massive borrowing binge in the past 2-3 years that ramped up real estate financed well under 5.0% I would expect that any kind of inflation rate over 3 percent per year would star tot scare them as they would be loosing on the deals.
Another posibility could be that the reinflaiton in the US deflated other economies in the world causing a global disinflation. So if the US was to start deflating it would cause inflaiton in the rest of the world which would see the US as a value investment. The world has become the US's safety net against deflation. that would mean the US would loose its position as the economic leader or would have to compete against much stronger nations. China, Japan (if they recover), India, the EU... maybe Russia will make a come back?
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