Deflation vs. Inflation Discussion

Lately, arguments on the future prospects of the economy have turned very confusing - so many people worried about the growing deficit and debt, and the potential implications on the currency and high inflation and yet so many other people calling for more deficits and monetary easing due to the fears of deflation.  Aren't these two monetary phenomena diametrically opposed? and if they are, how can the market be arguing for the two extremes at the same time?

The answer is yes - they are opposed, and yes, the market has a right to be arguing for both at the same time. At a high level - very significant (fiscal and monetary) measures that could create some serious inflation need to be taken (or better said, need to be expanded) to make sure we don't fall into a deflation trap.  Japan has been taking measures for twenty years that would spark fears of hyperinflation and lead to devaluations in most countries, yet, despite those measures, after all these years, its still dealing with falling prices and an appreciating currency.

In simple terms - I've beaten this horse to death - we borrowed significant amounts of money and invested them in non-productive assets.  There is no difference between us having invested all the mortgage debt we took out (close to $10Tr to be exact) in homes or in statues (ok, there's a slight difference - we can sleep and eat in our homes, where we wouldn't be able to do it in statues)... yet, while we spent all that money in statues, we still owe the money - but our productive capacity to repay it is less than what its supposed to be...  Since we owe so much money with limited productive assets to pay back, our individual decisions point to our savings to pay all that money back - which then puts the economy at risk, which leads companies to invest less, to get leaner, which leads to potential contraction and to potentially lower prices - starting a downward spiral... that also leads to an appreciating currency (because of the falling prices, which makes exports less competitive, despite all the printing of money)... that's the deflation trap we need to do everything to not fall into, its a very bad situation....

So, we will undergo all the practices possible to not fall into it - printing money, providing economic stimulus, etc (if our politics allow it after the elections) - which will ultimately lead to rampant inflation (too much money chasing too few goods) and currency debasing... yet its something we need to do to not fall into the trap above...

that's how we can be talking about inflation and deflation at the same time... we need to take inflationary measures to not fall into a deflation trap.  this is all the result of the bubble we all lived through - facilitated by the Fed for so many years, as to how they let it become this way - its a function of another posting...