By now readers of my blog posts know that I tend to have a "muddle-through" point of view. Times may be good, or times may be bad, but rarely does Armageddon happen. In the last 100 years, it only happened 1 time -- in the 1929-39 Great Depression. There may have been inflation, there may have been recessions, but always people adapted and an equilibrium was struck, and growth resumed.
Even World Wars 1 and 2 (and 2 had a lot to do with the oppressive settlement of 1) occurred after 100 years of near universal international peace in Europe.

Over the last 25+ years the entire globe has been undergoing a disinflationary period of growth. Interest rates have declined; consumers in advanced countries who haven't made much progress in wages could at least refinance their debt, or perhaps cash in the value of booming stock or real estate assets.
All of that appears to be coming to an end.
Exactly how the inflection to a new era will happen is unusually chaotic, and typically the debate is between those who see a large or even hyper-inflationary move, and those who see some kind of deflationary Great Depression 2. That debate is played out on the blogs between, for example, Russ Winter (hyperinflation) and Mish (deflation).
In fact I see no reason why the inflection cannot be played out exactly as it is now: inflation in prices (especially raw commodities) set globally; deflation in prices (especially assets like real estate and stock prices) primarily set domestically. And in the absence of effective bargaining power, wage stagnation.

A fundamental flaw, it seems to me, in the high- or hyper-inflation scenario is, exactly who is going to pay these price increases? Surely not Joe Ultralight Sixpack! In between the global raw commodity price surges, and a tapped out US consumer, every intermediate player -- every manufacturer, wholesaler, and retailer -- is going to have their margins squeezed. Those who can still eke out a profit will survive. Those who can’t, won’t.

I happen to think this is exactly why non-energy, non-food (a/k/a core) inflation is so tame — it is actually moving contrary to food and energy prices.

Of course, European and Asian consumers are in the same bind as those in the US: those whose wages are growing and have assets (and their countries, especially in Asia) can better absorb the inflation than those whose wages are stagnant and whose assets are imploding (especially the US, but parts of Europe and Japan as well).

For us in the US, this means that absent improvement in our trade and budget balances, the central bank (the Fed) must choose between defending the dollar, and defending the creditor and debtor/consumer. So far, the Fed is bailing out Wall Street and letting the dollar go. That cannot go on indefinitely, and it won't.

At very least there is one easy action (actually inaction) to take to improve one of those balances, and that is to let the Bush tax cuts expire. If we simply return to Clinton-era taxes, under which we had a (unitary) budget surplus, the dollar ought to strengthen. This will take care of some of the commodity inflation, and therefore ameliorate some of the decline in the standard of living of the average American. Much more of course, needs to be done, but recognizing the Big Economic Picture, and undoing a major component of the harm is an important first step.