Despite the government's bailout plan, home prices are falling, unemployment is rising, manufacturing is collapsing and prices are declining everywhere: For energy, food, appliances, clothing — you name it — as more Americans hold on to their money and the global economy gets worse.

The result is creating a dangerous deflationary spiral that not only will continue to crush earnings and increase layoffs but will ultimately prompt businesses to cut production, accelerate layoffs and stop expanding — further weakening demand.

And the fallout is about to result in the unthinkable: The worst deflation since the Great Depression!

And the economy could already be headed this way, with the government's latest numbers showing: Greatest contraction in manufacturing sectors in 28 years; job losses rose to a 34-year high in November; home prices dropping 17% from the year before; foreclosure rates up 25% since 2007, and oil prices falling 67% since July 11th.

Tragically, most investors have no clue how global deflation will not only undermine the world's markets but will make the 1980 recession look like a drop in the bucket. The reason is simple:

Unlike rising inflation that you can choke off by raising interest rates, deflation is a much more dangerous animal to tame. (See also: "Power Through the Recession With This Stock.")

That's because falling prices make it difficult for business to expand even when interest rates are zero. As a result, profit margins decline, profits evaporate and layoffs increases…as consumers stop spending, fearing their own job may be the next to get cut.

Do you realize what this means?

The chain reaction will cause prices to fall further, making your cash not only worth more but your debts more expensive to pay off — not only for individuals but for businesses as well making it even more difficult for banks to lend money since businesses won't show the growth needed to pay back their loans.

And the end result is about to crush unwitting investors who fail to understand the dangerous and costly situation that's unfolding.

But once you take the simple actions I'll point out here…