James Hamilton has this very interesting point to make; that deflation is impossible given an all-powerful unlimited FED.
He's right, but this view is extremely dangerous, and I say runs a severe risk of violent revolution given the current cheap-labor movement.
If we don't have massive deflation soon, we're going to have continued stagflation: wages falling behind inflation in real cost of living (using Roosevelt's, not Reagan's, CPI). Americans cannot compete with third world wages in production- in fact, we've had that for 40 years now as factory jobs have moved overseas and been replaced only with extremely low-wage service industry jobs. The real cause behind falling house prices isn't just the subprime bubble and crash- it's that housing is now unobtanium for a large percentage of the US population when you take away con games like the subprime mortgage market.
Food & fuel are also now quite problematic- a person can't afford to live 5 miles out in the country and have an inner-city minimum wage job, there's no way to get to work. Food prices are increasing fast enough that we're seeing charity organizations, last resort for the poor, running out of food in the food banks.
Yes, he is absolutely right that deflation is not to be feared, that the FED can control the deflationary rate. Yes he is right that deflation is not a reasonable forecast because of this. But we're coming very close to the point of the lack of deflation causing a civil war, it's already to the point where a lack of deflation is causing suicide. Suicide is anger turned inward- revolt is anger turned outward. Is that what we really want? Is protection of the already rich so neccessary that we're going to allow it to cost us human lives?