There was a huge scare about a supposedly coming deflation in late 2008, and I see still some headlines about possible deflation. I had some quite strong discussions about this topic during last winter.
My take is simple, but it's not obvious enough for those who prefer to float with the current:
There were superficial early indicators for a USD and even EUR deflation, the seeds for the deflation fear. Indicators are mere indicators, though.
My thoughts included political behaviour, politicians/bureaucrats/technocrats and the fact that the U.S. invents new money at unprecedented rates. The early indicators and many economic theories and models are of questionable value in extraordinary, unprecedented situations like ours.
The ideal situation for a debt-reducing surprise inflation is a time of deflation scare.
That's a perfect, incredibly advantageous situation. Inflation doesn't reduce government (and other) much if it's expected inflation. The opposite - expected deflation - is like a godsend for a government intent on reducing its debt by inflation. This may be (or not) an actual federal U.S. strategy. The PR Chinese government isn't so uneasy about its dollar reserves because it expects them to rise in value, after all.
My scenario: The expansionist fiscal and central bank policies CAN cause an inflation, and it would surprise (extremely!) those who expect deflation.
I don't question that we could still see USD deflation (although the fiscal and central bank policies have fought against this tendency with great might) or that it was a possibility.
Yet, I was very irritated about how certain 'some people' were about a forthcoming deflation - completely ignoring the arguments pro inflation. I had the subjective impression of more inflation-related news and reports coming from Europe than from the U.S. anyway (both related to the USD).
'Some people' assumed that some early indicators were reliable and markets on autopilot; they ignored the capability of central banks and governments to steer against the trend and to even exploit it for their purposes.
Economists, even much-respected professors, opposed each other in debates about inflation vs. deflation expectations because it's really difficult (if not impossible) to KNOW in advance what would happen. It seemed really foolish (if not arrogant) to me how some laymen still claimed to be right beyond doubt, and everyone who disagreed didn't get it or is supposedly bad at economics.
It was especially ridiculous to hear about how this or that conclusion was supposedly "econ101" when it wasn't and when the same people had only a very superficial understanding of economics while discussing against actual economists who had learned much more than economics basics.
The inflation/deflation topic was a great case study about dirty rhetoric tricks, just like most rather emotionally-laden topics.
Some laymen were discussing this macro economic topic as if it was some kind of domino game, without entities in it that could influence events with their will.
Funnily, some of the same people were quick at criticizing professional economists for their supposed "homo economicus" theory. That's an outdated economic theory about perfectly rational human behaviour that gets nowadays more attention among economics laymen than among real economists. Economic students learn it in their first year - for about 20 minutes - because it's simplistic and a part of the whole.
We had so many short-sighted short-term policies in the past decades that few still consider our supposedly unstable democratic governments as capable of daring medium-term strategies. Yet, that's probably what we're experiencing. It may sound like a conspiracy theory to some, but the situation is simply perfect for a surprise inflation that would eradicate much of the U.S. government's debt. The enabler is the federal Reserve Bank, which invents new dollars at an astonishing rate.
The same can happen in the UK (much less likely). It's almost impossible in the Euro zone because of the design of the ECB.
Very active readers of the security-related blogosphere may already have understood this as what it is: Nothing less than an attack on a certain blogger who picks up topics, blogs for months or years strongly favouring one side of the topic and retreats silently once it is obvious that he picked the wrong team (as in case of "peak oil" as reason for the oil price troubles, for example).
P.S.: I don't expect serious inflation in the Euro zone - the ECB lacks the organizational structure for such a scenario. It was designed for stability, not as a major political actor.
Basically neither much inflation nor much deflation happened in the last five years in the U.S. or the Euro zone. The crisis doesn't seem so very much unprecedented any more; the great depression and the Japanese Lost Two Decades are useful parallels. The latter points at a lingering susceptibility to deflation. The very much inflated money quantity (M2, M3 et cetera) in the U.S. still holds the potential for much inflation if the anticipated "tapering" isn't done well. Overall, the last five years look a lot like a single long postponement of either deflation or inflation - with many more years of muddling through as third scenario.