"The broad perspective of economics recognizes economics as a science of human behavior. As thinking beings, men [and women] act purposefully in order to achieve ends. As such it cannot be modeled like physics which depends on past actions repeating."
The article is at http://www.economicnoise.com/2012/01/12/inflation-or-deflation-before-the-unavoidable-depression/
It points out that politicians are deeply motivated to defer recessions using any means available once it becomes clear that the event is imminent on their watch. They're likely to be willing to take extreme measures, regardless of whether the effect is long-lasting or safe, as long as it "kicks the can down the road" and "off their patch".
Such "cornered rat" responses could be a wild card affecting the inflation-deflation debate, because politicians may attempt more extreme measures than analysts might have expected from "pre-endgame" economic precedents. For example, I believe that, if politically expedient, money could be created and spent with far less subtlety and uncertainty than the present coy credit-based mechanisms. Bear in mind that if the global situation worsens, there may well be rioting in the streets. That sort of anger can make even indolent politicians take action. For example, what politician would hesitate to create money if it was needed to pay the armed forces?
Politicians under threat won't care if their actions don't prevent a depression (which is almost certainly unavoidable anyway in the end), as long as their terms elapse unscathed.
Another relevant human behavioural aspect to economics is that expectations of inflation or deflation tend to be self-fulfilling prophecies, as discussed at:
For example, if we expect inflation, we tend to divest ourselves of currencies, which tends to devalue them. I think that there were, until recently, global expectations of inflation, and that these might have still held sway today. However, I believe that they were derailed globally (perhaps only temporarily, but who knows) by the well-publicised attitudes of austerity-favouring countries in Europe, notably Germany. Sweden is another, albeit lower profile, example.
I'm very curious to see how the developing "race to the bottom" for the currencies of countries like China, the USA, and Japan will alter German monetary policy. Germany is particularly dependent on extra-European export income, which is very likely to be threatened by devaluations elsewhere. In addition, German politicians are seeing the austerity strategy failing miserably.
Just to be clear, I think that world debt levels will drive us on a chaotic journey into depression, regardless of whether the path is inflationary or deflationary. However, the fact that it's almost certainly too late to do anything strategically constructive with the time we can buy with inflationary measures doesn't mean that it isn't worth buying - particularly if you're a politician.
