The Bank for International Settlements reported yesterday that the current global financial situation - viewed as a bust after a boom - could trigger a global recession on a par with that experienced in the 1930s. The full report is here. Basically it argued that central banks should act as, well, central banks, by restraining excess credit growth by raising interest rates during boom times and puttting aside capital so that cutbacks on lending could be more restrained when times turn bad.
The BIS instruction seems to be to keep current interest rates high even if inflationary expectations do not materialise. On balance however they do see inflation as a threat obviously driven by high oil prices although they see wage increases as a significant threat. According to the credit crunch now being engineered by central banks has the potential to have catastrophic implications for the global economy.