Fed Praying The Reflation Trade Is Not Slipping Out Of Hands?

Anonymous commenter reminded me about the reflation in the context of Fisher's Debt Deflation over the weekend. Irving Fisher wrote:

Assuming, accordingly, that at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links: (1) debt liquidation leads to distress selling and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) a fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) a still greater fall in the net worth of business, precipitating bankruptcies and (5) a like fall in profits, which in a "capitalistic", that is, a private-profit society, leads the concerns which are running at a loss to make (6) a reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to (7) pessimism and loss of confidence, which in turn lead to (8) hoarding and slowing down still more the velocity of circulation.
The above eight changes cause (9) complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

So, the focus seems to be on "Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise ...". And any weakness in corporate profits is not in cards, as it is better to sink the state than give up in fighting the deflation?

The economists at BNP Paribas wrote on USD carry trade and inflation last week, with a summary:

Owing to the risk of succumbing to deflation, the G3 are expected to maintain their super-low interest rate regimes.
The effects of these regimes could spill over into the emerging economies via carry trades shorting the dollar, possibly resulting in a renewed surge in commodity prices in the event that emerging economies overheat.
If a currency like the dollar, the global standard for settlements, is shorted in massive carry trades, the macroeconomic impact would dwarf that of the yen carry trades, as the dollar could plunge and commodity prices could skyrocket.
The US could then go from facing deflation to facing surging prices from imported inflation and, if this were to rekindle problems plaguing the US financial system, the Fed could again be faced with the dilemma of having to choose between stabilising prices or stabilising the financial system.

However, Fed should be praying that they are in control of, especially, food and energy prices (what they usually are not, as they exclude exactly the food and energy inflation from their focus on core inflation). The economists of BNP Paribas wrote in explanation:

There is a risk that, at some stage, the dollar could plunge and commodity prices could skyrocket. At that time, the macroeconomic impact would dwarf that of the yen carry trades. The US could then go from facing deflation to facing inflation due to dollar carry trades swelling to the point of triggering imported inflation. And with this imported inflation eroding real purchasing power in the US, thereby becoming a constraint on the economy, there is a chance that problems plaguing the US financial system could be reignited. The Fed would then be faced with the dilemma of having to choose between stabilising prices or stabilising the financial system. This is one risk scenario currently facing the FX market.

We have short memory? Will we notice the rise in food prices? Car makers, very likely, will...

There is much more of the alike discussion at FT Alphaville...