One fear I have is that by firing up the dollar printing presses to churn out north of a trillion dollars (first $700B bank bailout, new Obama $570B infrastructure program, $25B auto bailout) the currency will be further diluted. In the short term we might be able to avoid deflation (more on that later), but in the long term see high inflation that will be hard to stop without other consequences. The trick would be to put enough cash into the system to kickstart it, but then get most of it back out of circulation through taxes quickly enough to avoid inflation. Tricky business, and I doubt they will get it exactly right or completely wrong. Somewhere in the middle as usual.
Some "experts" use the term hyperinflation, but that seems too extreme. If hyperinflation is defined conservatively by the doubling of prices every 3 years, or 26% per year, I don't see that happenning. Maybe 10% per year for a year or two. Interest rates will rise, hopefully curbing inflation but almost certainly also retarding growth.
Considering how far in the toilet (compared to the US) most of the world is right now as well, the dollar will remain the safe haven. I don't see a huge global flight to the Euro, Yen, or Yuan anytime soon.
Back to the possibility of deflation, I wonder if the instant gratification aspect of many uberconsumers will help to fight deflation. The theory of deflation is that people will delay buying because they think it will be cheaper tomorrow. What this doesn't account for is the irrational need to buy for many people. And they want it RIGHT NOW. As long as they have money (or room on their credit card), they will buy. This would lessen the chance or severity of deflation.
The irony of our situation is that the "wise" consumers would pare back their spending to keep a reserve for possibly darker days ahead, while hoping the rest of the suckers in the malls keep buying. But if there were too many wise consumers then the process falls apart and deflation is inevitable.
I try not to be too rosy nor an extreme pessimist. But IMO, when this is over in a year or so, you will see permanent changes in the banking system and the general outlook of many people. Industry that actually makes things will be valued in the US. The rest of the world's economies will be weakened and start to rebuild with possible new winners and losers. The US will not be as rich as it was, or at least as rich at it appeared to be. But we might be better off in the long run because of it.
1985 Honda VF1000R, 1990 Ducati 851, 2008 YZ450F