Trying to micro-analyse the golden question about Inflation vs Deflation

A good analysis from www.worldofwallstreet.us about how the arguments of the most prominent inflationist and deflationist pair up against each other. Both have very good arguments and only time will tell who emerging correct.

Best Of The Podcasts: Prechter Vs Schiff (Deflation vs Inflation), The Puplava Interviews
http://www.financialsense.com/fsn/main.html
Jim Puplava has posted two different interviews over the last two weeks giving the leading deflationist and leading inflationist a chance to clearly present their views and supporting evidence. I've just listened to both of these interviews pretty carefully.
Here's a summary as I heard it:
Prechter's key point is that there is an ocean of unpayable debt which must result in a deflationary collapse and depression (huge unemployment, big hit on the standard of living, etc.).
Schiff agrees that there is an ocean of unpayable debt, but disagrees on what the outcome will be. He expects a dollar collapse and an inflationary depression (huge unemployment, big hit on the standard of living, etc.).
So, there is a lot more agreement between the “deflationists” and the “inflationists” than you would think.
Prechter claims that the creditors will not allow the Federal Reserve to “print its way out of the debt” and that the key evidence for this is that the Fed has tried really hard to keep from doing anything to really, really tick of its creditors.
Schiff claims that the Federal Reserve will keep “printing debt” until the creditors refuse to buy any more and that is when the printing goes into high-gear and there is a currency collapse (dollar plummets) and the inflationary depression really kicks in.
Schiff claims that the government and Federal Reserve have been printing money and causing inflation non-stop for decades and there's nothing to stop them from continuing and that there are very powerful reasons for the government to continue including:
Allowing the government to spend money without having to raise taxes.
Inflation allows the government to tax assets (when sold) which have not gone up in value (for example when you sell a house).
Inflation automatically drives tax payers into higher brackets increasing their tax burden.
I find Schiff's argument here is pretty compelling.
Prechter claims a major shift has taken place in the last year with credit contracting and a major change attitude to avoid debt. Prechter claims the amount of monetization so far is puny compared to shrinkage in the amount of credit outstanding and that even if all of the bad debt was replaced with 100 dollar bills it would not create inflation because it would just replace what was formally in place.
I find Prechter's argument pretty weak here because the replacement dollars would be chasing fewer goods (as a result of economic distortions) resulting in price inflation.
Here's my observations:
Prechter is an man enthralled by his grand idea of a cyclic approach to history based on waves of mass mob attitude. He paints everything as black and white (e.g. these guys at the Federal Reserve are completely powerless and just follow the trends of cyclic history). At the core of his thinking is his cyclic thinking, not any kind of argument based on specific data. He can't imagine any way he would be wrong and requires 5 years for his ideas to be tested. This puts me off. I can buy an idea that cycles are significant, but not that they are overwhelmingly the most important thing that dominates all other considerations.
Schiff's outlook seems to be more based on data and natural reasoning about cause and effect and is more in continuity the last few decades experience. Prechter has been more accurate on what has happened the last 18 months or so with Schiff having been wrong short-term about the dollar and inflation.
Neither seems to understand why USA creditors (China, Japan, etc.) keep buying USA debt and neither has a grip on what will trigger their stepping back and yet this is the key to the current situation and when/if it will change suddenly.
So to my mind, there is no clear winner of this controversy right now, although I favor Schiff's outlook.
What's next?
We are going to be at a really, really interesting point around the end of this year and I see two really big factors that should put their ideas to the test:
Federal Reserve funds for monetizing debt runs out in October, I believe. They will then either have to:
Stop buying treasuries and Fannie Mae / Freddie Mac debt which may very well cause interest rates to launch and trigger another major contraction which results in the dollar rising in a flight to safety. If this happens Prechter is proved right.
Announce another round of monetization and have the creditors belly ache but keep on buying treasuries. If this happens the jury is still out.
Announce another round of moneitization and have the creditors refuse to keep buying treasuries resulting in a dollar collapse. If this happens Schiff is proved right short term.
Secretly continue monetization (with perhaps a delayed reaction).
Year over year commodity prices start rising in Q4 (unless there is another crash) and the CPI should stop falling and start rising. The U.S. Dollar should probably keep falling, but any significant resumption of CPI rise proves Schiff right short term. Prechter's outlook doesn't really allow for this, although he gives himself test of requiring all prices to rise to new highs.
Of course, both may be wrong and the ocean of debt may not be unsupportable and there may be a chance that we just muddle through indefinitely, with GDP growth and super low interest rates allowing the USA to work its way out of debt (or at least sustain the debt). I'm kind of dubious of this result, although the key to the whole situation is the reaction of USA creditors to the continued piling up of USA debt and there's no telling how long they will just grin and bear it.
I'm in Schiff camp of thinking that the USA will continue to pile up and monetize debt and think that eventually there will be a major dollar collapse when times get really, really bad. I'm expecting either scenario 1.2 or 1.3 this fall with either minor CPI inflation (with 1.2) or major CPI inflation with another big economic step down (with 1.3).
Hope this makes some sense. I certainly don't have a crystal ball and am perfectly willing to admit I'm wrong if the data shifts leading me out of the inflationist camp into either the muddle-through or deflationist camp.