A deflationary bust would be the normal outcome from the end of a credit induced boom.

The Fed and most of our legislators have a desire for a different outcome.

Ultimately the outcome will be a bust of some sort and it will be deflationary from the standpoint of the value of real goods. Whether it is price deflationary will depend on what the powers that be do to our currency. If they destroy the currency it could be deflationary from the standpoint of the value of real goods but it could still take more currency dollars to purchase goods.

So it depends on what they are able to accomplish on destroying the value of our currency. When they are trying for positive inflation in prices, that is exactly what they are trying to do - destroy part of its purchasing power.

The ultimate outcome I believe is pretty certain, and it will be deflationary from the value of real goods as people will not be able to afford as much as they use to. Whether prices will rise or fall is yet to be determined. Certain asset prices are already reflecting price inflation - stocks, bonds, farm land. The monetary inflation so far is only showing up much in limited asset classes.

My opinion.

John