the current policy decisions in Japan (weaken the yen), US (avoid asset bubbles, without killing the nascent US economic recovery) and China (rein in out of control credit system) are “a three-way disinflationary impulse in an otherwise powerfully reflationary world”
By introducing the concept of tapering to the market, Bernanke hoped to introduce volatility to interest rate markets but without significant impact on the level of interest rates themselves. Like the dodgy rock band which doesn’t understand the sensitivity and feedback loops of its sound system, Bernanke tapped the microphone and the amplifiers blew up. Long term real rates rose by 1%. The first live gig didn’t go so well.
What does this all add up to? A three–way disinflationary impulse in an otherwise powerfully reflationary world. Of course, the disruption caused by this impulse has been brutal and could result in something significant breaking, eg the collapse of a financial institution, an emerging market blow–up, or a sovereign crisis. If it doesn’t, and Japanese capital starts to flow out of Japan, then I would expect global reflationary forces to begin reasserting themselves over the coming months.