[quote]Based on history the Fed will inflate as we see above. Bernake is a
scholar of the Great Depression and as such will put as much money into
the system as possible to avoid deflation. [/quote]
Which, ironically, also makes him an idiot. Printing money is always inflationary, even if it magically manages to exactly match the deflation going down the inflationary effect will be quite obvious in historical charts when after fully unwinding debt builds again.
One of these days, I’ll meet an economist that grasps that when two very different metrics work in tandem in a manner that disguises their effect, it won’t make it disappear. But, I fear that day will be 50+ into the future when Economics sheds its pseudo science origins, and its sophistry laced theories intended to support the status quo.
[quote] Potential bailout and preexisting bailouts (and Fed policy) -> inflation -> hyperinflation
Commodities up | dollar down | interest rates eventually up [/quote]
Basically. Though it is doubtful we’ll enter a full hyper inflationary spiral. The US government debt load (which, in this case, is the one that matters) isn’t high enough. Nor, will the government likely continue inflationary policies once the ‘power elite’ (read the rich) start squealing about inflation eating away their wealth.
However, even once the government stops such actions, expect inflation to take years to battle down completely.
[quote]The economy is entering a severe recession -> increase in
unemployment -> less spending -> -> downward pressure on
prices –> depression [/quote]
Don’t forget all those debts people owe eating into their spending as well! Especially now that they can’t just borrow faster to offset the loss.
[quote]Fed on one side inflation :: Economy deflating –> Which side
will win? If history is proof the banks tried to bailout the market
during the crash of 1929 and we all know how that turned out.
[/quote]
Banks don’t print money. Only the Fed can do that. As for which side will win. Both, simultaneously. The debt deflation and printing inflation will create both opposing and orthogonal pressures. For instance, you might see spiking commodity costs and interest rates while wages stay stagnant (or even drop) and unemployment climbs.
Error! Error! History has repeatedly proven that economists know jack shit about recession and depression events. Any claim of ‘X’ always happens during ‘Y’ is likely flawed. Indeed, the fact the economists fail so badly in predicting/comprehending such events is pretty much proof that economists know very little about, well, economics.
And, one begins to see how we so easily paint ourselves into economic corners.
[quote]However, what happens if we have deflation, but with our present debt
burden is there any possibility of the dollar actually gaining
strength? [/quote]
Depends on how the two factors (printing vs debt destruction) meshed.