To your credit you seem to acknowledge that lots of inflation would be bad. You also have the correct assessment that predictions of hyperinflation are mostly wrong. To have that happen, the government would have to be essentially the only employer and pension plan so they could raise wages and pensions on a daily basis.
Unfortunately you have missed the main lesson of Japan which is that claims by people like Bernanke that they can control deflation by QE or other schemes are a joke. The latest I heard (earlier this year) is he would target a nice cozy 1% price inflation. What he has actually done is create a knife edge in the form of a treasury bubble. As his QE forces long rates down, he has become the last and best greater fool for treasury buyers. Each bout of deflation psychology like the mild one last week drives up demand for the 10 year treasuries. Take a look at Tuesday to Wednesday, a huge gap down in S&P500 with a huge gap up in the 10 year (gap down in the rate of about 50 bp). The pattern repeats every day in one direction or the other.
Essentially what happened Tuesday night is that a (relatively mild) deflation fear psychology took hold which at the root is the same problem as Japan had: insolvent banks with questionable assets (e.g. ABS, CDS, etc) and loads of liabilities (e.g. trillions in deposits) holding a gun to the financial system. The result of this psychology is some fools buy 10 year treasuries knowing that some other fool will buy them because everyone knows that the ultimate perfect fool Bernanke is ready to buy them. Why perfect? Because Bernanke has no limits on what he can spend and no need to make any profit, he can simply buy them and burn them.
If Bernanke had any shred of hope of stopping this crisis last fall he could have followed the MSM propaganda and fixed the whole problem by applying QE in the real estate market: printing money and buying and burning houses. Even a generous estimate of the problem (5m too many houses) would only have required $1T at 200k per house. Why wasn't it solvable then? The complicating factor was securities that were not, or only loosely, based on hard assets and income streams, things like CDS. Essentially instead of relying on payments from a borrower, the big banks relied on financial insurance payments and other exotic payments from other financial players.
So instead of a quick and easy fix we ended up with an endless black hole of bank and insurance company bailouts. You need to understand this underlying problem before you will understand that the treasury bubble solution will not work. The only ways out of a treasury bubble are an inflationary boom or deflation. The higher the treasury bubble goes, the higher the inflationary boom needs to be or the more likely the deflation will end the financial system. Mises was right, there are no other choices, no easy way out.
I don't think you "control" deflation. You have to destroy it before it destroys you.
As his QE forces long rates down, he has become the last and best greater fool for treasury buyers.
There is no guarantee that QE will force long rates down. I do think the idea of buying longer term Treasuries is silly. There is no shortage of buyers (yet) for those securities. Buy longer term corporates and MBS. Banks and other sellers will then invest their proceeds (some in Treasuries) and repair their balance sheets.
OTOH, Bernanke can effect the price of 2 things: Treasuries & agency debt. The Treasury bubble is well understood, but now many are starting to realize that the excess liquidity is what has been driving the equities markets for the last 2 months.
As for agency debt, imagine what home sales volume/prices would be if .gov wasn't subsidizing/backstopping around 99% of the purchases via both FNM/FRM & FHA. Volume would be -0- (what bank would originate a mortgage if they couldn't immediately sell it?) and price declines would be 50-80%.
That's why we are seeing the disconnect between deflation in the 'real' economy ie that which is subject to real economic production and the resultant global credit markets, and inflation in the 'government' economy ie that which is subject to fiat currency controls.
Right now, or at least for the last 2 months, the government economy has dominated a few sectors such as the rise in the stock market and commodities prices (anticipating currency devaluation). I believe this is transitory in nature, and the markets will soon correct to reflect the true nature of what is occurring in the global economy: deflation.
I agree with palmer that the G20 central bankers & governments are attempting inflation, but that they will fail. That's because any price spike in commodities (eg oil) and food (eg oil/gas->fertilizer) will have another immediate effect at reducing consumption.
I also agree with palmer that if they fail at inflation, the entire system will come down. Notwithstanding the sham 'stress tests' and recent run up in share prices to allow the banks to recapitalize, at some point the facade of false asset valuations behind the L3 CDS/CDO will finally have to be recognized.
Where I differ with Orlov is what happens after the collapse. The US was built by self-reliant people and a significant portion of the population still share those characteristics. Americans are armed and willing to defend their rights; they will be opposed by police & military who may or may not even be getting paid. I see them quickly coming over to the side of liberty.
After the dust settles, I view the next few years as a great opportunity to re-build the Republic.