I guess I missed the pictures of the soup kitchens in Japan. It depends on the severity.
"Don't want to burst your bubble, but money hasn't been backed by anything in a while. And if we're suffering deflation, that's the opposite of inflation."
Your bubble, not mine [pun intended.] True -- since the Nixon administration the dollar has been a confidence game in the truest sense [and your point is?] Thirty years is a long time in the life of a man, but it isn't long enough to prove the desirability or even the true viability of the concept. Fiat money experiments have always ended badly in the past and if the goal is monetary stability this one is not looking too good. If the goal was orchestrated theft, the Fed [Burns and Greenie -- not really Volker] has done a great job since the gold window closed.
"What if your choice was 2% annual inflation for the next 15 years, or 2% annual deflation for the next 15 years?"
A two percent annual deflation would give us an opportunity to work out of or if necessary liquidate a lot of malinvestments. A two percent inflation might not be a disaster, but the more debt loads expand that harder it will be to maintain anything even vaguely resembling monetary stability. Given a continuation of the current inflation it is IMO likely that tipping point will be reached where it go one way or the other ... and do it with a vengeance.
"Then please, give us your top 5 deflation fighting tools."
??? Refer to my previously expressed preference for Japan over Wiemar Germany.
I guess you missed the 15 years of no growth in Japan?
A two percent annual deflation would give us an opportunity to work out of or if necessary liquidate a lot of malinvestments.
So you really see no dangers to deflating asset prices? What if housing prices dropped 2% a year for 15 years? Would that be good or bad? Would deflating prices for automobiles make GM more or less likely to survive?
Refer to my previously expressed preference for Japan over Wiemar Germany.
You should refer to Bernanke's remarks (referencing Friedman's remarks) about dropping money from a helicopter.
You don't drop money to fight deflation if you've got inflation. Inflation is too much money chasing too few goods. Deflation is too many goods chasing too little money. Too little money can be cured with more money, hence the helicopter.