I don't know the exact method Jagex uses to determine prices, but I suspect they include trades off the GE to determine prices; otherwise, broodoo shields probably wouldn't have survived as viable junk as long as they did.
Thus, with free trade, it's possible the crash is partially due to the way the GE determines mid prices - people are seeing an artificial drop in the apparent price, assume it's a real decrease, and sell lower as a result. If so, the deflation isn't sustainable.
I assume prices will bounce back in a couple weeks.