The conventional wisdom is that, with the recession, the US will experience some inflation. Flanders, the resident financial guru on this blog, thinks the opposite. Here is a potential scenario for deflation, via Flanders, with some input from myself:
a) Deleveraging (selling assets to raise cash) by financial institutions means that they need lots of cash now-now-now and so dollars (because investors want to be paid in dollars rather than Euros or pounds) are more valuable.
b) A global recession means that raw materials are going down in price. So if you are a business needing raw materials, why buy now? Hoard your money for a bit and raw materials will be cheaper in the future. This could create a cycle of reduced demand creating an even steeper slide in price for raw materials, increasing the incentives to hoard money and buy later, decreasing demand further, etc. etc.
So overall, demand (from financial institutions) for the dollar is going up, while supply is going down because of hoarding. When demand goes up and supply goes down, price goes up. Therefore dollars will increase in value.
Since I don't really understand this stuff, comments are welcome.