Thats brass tax. Good post. It all comes down to banks willingness to lend and the private sectors willingness to borrow. The doubling of the monetary base is an ominous warning, that in normal times, would have signaled certain inflation. The crux - most money is created through loans, which must be granted by solvent banks, to solvent customers. By that measure, we're 1/3rd of the way there. Then consider the market. Gold at 950$, Oil at 65$, commodities resurging, bonds dumping, dollar dumping and markets up....
I'm glad you thought as much to bring up trade policies, and their role in the situation we find ourselves in. It seems to be the White Elephant in the room that no one wants to talk about anymore, despite possibly being one of the most fundamental issues of our time. Maybe the dogma about 'free trade' being good is so strong that we no longer seek to challenge that assertion, despite my contention that there is NO free trade, given that every country in the world is massively subsidizing just about every domestic industry in one form or another.
So you are saying either we get high inflation or deflation? That's a bit like saying either we are going to have a recovery or the recession is going to get worse, or that the stock market will either go up or down.
America's heydays were when there was NOT free trade. We had a relatively "closed" economic system. Things were made and consumed HERE... gave rise to union wages as there was virtually no viable competition. Now with "free trade", many things boil down to the low-cost producer or provider.... and virtually NONE of that is in the US.
I agree with your contention. Further, it is my contention that there can never be free trade without freedom of labor movement. Having borders open to flow of capital but closed to flow of labor is not capitalism, it's feudalism. Once it's put in that context, it turns out that there are extremely few actual believers in free trade in the US.
http://www.youtube.com/watch?v=g-x9hgx3tTY Check out the high stakes he plays for - a whole penny! But apparently a penny is too much for him to pay: http://www.youtube.com/watch?v=9BND3F1KfZ0&feature=related From "the economy has never been in better shape" to "The End of Prosperity" and welshing on a 1 penny bet within 18 months.
From Gluskin Sheff/Rosenberg, regarding the "breathing room" of the US to increase taxes in order to service future debt, putting intermediate-term US sovereign default risk into perspective (the sectors loaded with debt and facing borderline bankruptcy are private households, banks and corporations, not so much the US government in particular -- contrary to popular belief. Uncle Sam can simply hike taxes. What will private households do? Ask for higher wages like in the 70s? ):
Wow. I wasn't aware of that whopper of a flip-flop. Maybe I'm holding him to too high a standard by expressing dismay, as even the best economists can get it wrong, but that is an extreme range in a short period of time for someone who is accepted as and deemed credible.
I think we are all forgetting the market's ability to adapt to government intervention. And should adapt much faster than in the past thanks to more efficient flow of information (hopefully).
I can't predict human behavioural responses to stimuli, but I can offer hypotheses on what may occur given a set of potential responses.