The falling US dollar is not the only issue in play. You also need to consider the fact that we are in the midst of the greatest credit bubble in modern history.
Total Credit Market Debt vs. GDP
When billions of dollars of "pretend" money go up in smoke and mortgage lenders are no longer passing out loans like halloween candy, that will be by definition deflationary.
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Another issue is loan originators pretty much are risk free. They approve anyone who walks through a door--take their 0.2-0.4% of the loan and then sell it to someone else (who bundles it up with other loans and then sells it to investors). I wish I could have gotten in on that
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Yes, but somebody eventually ends up holding those crappy loans. You think its a coincidence that Fannie Mae suddenly reports $10 Billion in derivative losses from "hedging" (that they tried to sweep under the rug)and are experiencing massive liquidity problems (they cut their dividend and skipped executive bonuses this year)?
The ponzi scheme cannot continue forever. I know this is hard to imagine, but there will come a time when mortgage lenders once again require home "owners" to pay back their loans.