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adwebster

Certain ? no way I am just entertaining myself with theories (and hopefully a few here) I think if we attach ourselves to ideas to strongly it simply reflects our ego and eastern philosophers tell us that attachment causes suffering (economic losses)

But I do know the answer your question about what will signal a change form deflation to inflation, the problem the fed has at the moment is that for all the money printing they are attempting its not getting transmitted to the economy

The Fed is pumping money into a black hole , the economies are so leveraged that for every dollar pumped in about 95c reaches the economy.

In monetary theory terms they refer to this is as the monetary transmission channel, the reason credit is so important is that without credit all the money dropped by the helicopter gets blown away by debt retirement before it reaches the ground. The banks are so capital impaired they that they keep it on the way through and so it doesnt reach consumers who wouldnt borrow it anyway because they are scared to death of taking on more debt because the debt to income levels are so high.

The Fed calls this measure the money multiplier and when this measure turns it will signal the return of normal credit conditions and depending on the steepness of the curve whether we lurch into hyperinflation

All of Bernankes work at Princeton suggested that the Fed could step in at this stage and basically forgive all the bank private sector debt and move it onto the governments balance sheet. This is what they mean by suggesting the establishment of a "bad bank", this is a bank thats owned by the government that basically takes all the bad debt onto the governemnt.

The problem that exists though is there isnt enough money in the world to do this because the derivatives market has created more bad debt than any government (even combined) can absorb

If the money multiplier turns up then they have succeeded and gold will go ballistic

If that happens asset controls will have to implemented in order to control the hyper inflation

Here is an good explanation of the money multiplier

http://gregmankiw.blogspot.com/2009/01/disappearing-money-multiplier.html