Man taking money out of wallet © Jose Luis Pelaez Inc, Blend Images, Getty Images

Never before in recorded human history has money been as cheap as it is now. And it keeps getting cheaper. Hungary cut interest rates by 0.25% to 4.5% Tuesday morning, becoming the 15th central bank to cut rates in May.

Those central banks are responding to weakening global growth and falling prices, a combination at odds with the U.S. stock market's string of new highs. Those new highs have investors in a frenzy -- and have made them willing to ignore the very real signs worrying the central bankers.

Why? Because investors believe the cheap money will keep forcing stock prices higher.

But away from the market, new developments challenge that view. The evidence is growing we could face a dangerous bout of deflation -- falling prices, including falling stock prices, in the context of an economic slowdown -- that could rattle investors' faith in the central banks.

When that happens, watch out. Here's why.

Commodities shrivel

The commodity market, to list one example, is warning of trouble.

It's not just gold that's down. While the price of gold can fall simply because people feel better about the economy, there has been a wipeout in both industrial commodities, such as copper and aluminum, and precious metals. Agricultural commodity prices are down, too, and lumber prices are collapsing, down 28% since March.

With everyone mesmerized by the stock market's new highs, the bulls write all this off as a consequence of a U.S. dollar rising against the euro and yen. And they assume that lower commodity prices will be a net positive to the economy because they boost the purchasing power of consumers.

Maybe so.

But it's also a sign that something's not right deep inside the economy. If growth is truly about to rev up again, as stratospheric consumer confidence measures reported over the past week would seem to suggest, commodities and inflation should be stronger. In fact, nominal gross domestic product -- real GDP growth plus inflation, and shown in the chart below -- is ticking down again.

Gross Domestic Product

Both inflation and real economic growth are so weak -- with real annualized GDP growth averaging just 1.5% over the last two quarters, while consumer price inflation is running at a 1.1% annual rate -- that this measure has fallen to levels that have been associated with outright recessions in the post-World War II era.

Inflation and growth are tightly linked. Without one, you tend to not get the other.

It's not just the commodity market sending a deflationary message; recent economic data has also been pointing toward lower prices and weaker growth. The Richmond Fed manufacturing index this week featured a deepening slide in new orders, the number of employees and wages. The price measures in the Kansas City Fed manufacturing survey reported last week have returned to recessionary territory, as shown below.

Kansas City Fed Manufacturing Survey

And deflationary pressures are coming from overseas as well, as global trade suffers from Europe's deepening recession, China's emerging slowdown and Japan's malaise. Import prices are falling at a2.6% annual rate and have been stagnant for more than a year, as shown below. Excluding energy, prices are down 0.3%. And as a reminder that the overall downturn is being driven by a pullback in business investment, prices of imported capital goods are down for three months in a row, for a year-over-year rate of -0.6%.

Import and Export Prices

Again, this is all recessionary behavior.

Now you might be wondering, why would a drop in prices be a bad thing? In the context of productivity gains and technological change, it would not be. But in the context of a weakening economy and slumping demand, it is. And it's spiked by our deep indebtedness, since a period of deflation would increase the inflation-adjusted burden of household and government debts. You repay debts with money that's worth more, due to higher buying power.

In other words, deflation in a high-debt situation means you have to work harder, for longer, to pay down your debt.

What about the Fed?

All this seems at odds with the recent talk from Fed officials of slowing down its $85 billion-a-month bond purchase program, designed to push money into the economy.

The market is focusing on the sentiments of more "hawkish" Fed officials who are rightly starting to worry that a prolonged period of 0% interest rates and long-term bond purchases is encouraging investors and institutions to take too much risk. A few policymakers also worry that financial markets are becoming too buoyant, with a surge in the issuance of junk-rated bonds and bonds with fewer restrictions on collateral and payment terms (so-called "cov-lite" bonds), according to the meeting minutes.

Overall, Fed policymakers also seem to be much more optimistic about the state of the economy -- an optimism shared by consumers, but not by CEOs, who are lowering their predictions for second-quarter earnings at a pace not seen since 2001.

The optimism is misplaced, but the hawkishness is right on. It's time for the Fed to admit it's done all it can, withdraw stimulus and force Washington to fix the structural impediments to growth via infrastructure investment, tax reform and health-care cost control.

But it's unlikely to work out that way. In a few months, Washington will be embroiled in another blood feud over the debt ceiling and the budget. And, as it has done over the past few years, the Fed will respond aggressively to any sign of deepening deflation and a stock market correction.

Image: Anthony Mirhaydari - MSN Money

Anthony Mirhaydari

It just can't admit this emerging truth: Central banks -- not just the Fed, but those around the world -- still have the ability to juice financial markets, but they are losing their ability to create sustainable economic growth and fight deflation.

If we do fall into a new deflationary recession and bear market, this idea will be the driver of the fear needed to incite panic selling in the stock market. Faith in central banks is the one and only reason stocks have been ripping higher.

Central bankers won't easily admit they're losing control. Thus, they are getting more desperate and more aggressive.

Look at the European Central Bank's current discussion on the possibility of driving nominal interest rates into negative territory. Or the Bank of Japan's push to double its money supply over the next two years to create a 2% annual inflation rate -- at the risk of blowing up the market for its government bonds.

That's because the structural problem isn't that money is too expensive; it's that there is too much debt.