I have great respect for the opinions and projections of Karl Denninger; that is why I read him. I am not familiar with the writings of Stephen J. Puetz but it matters not to me.

The inflation/deflation debate is a matter of definitions and perspective. It should not relate to how the economy is making us "feel." For example when housing prices are going down, when businesses are closing, when unemployment starts rising everyone begins thinking deflation because people have been (deliberately?) mis-educated in the government run schooling systems. Governments love inflation. It is a stealth tax that the public doesn't even realize is being charged to them. Not one person in a hundred understands its power and effectiveness.

Inflation is an increase in the money supply. The money supply has been increasing dramatically. Most everyone assumes that because things "feel" deflationary that that is what we are experiencing. They see more destruction of credit coming and expect "deflation" will continue to worsen.

Not so! There was too much money and credit in the system. Housing prices got way out of whack with reality. Everybody and their brother ran up huge amounts of credit buying a new car every year and many other things they did not need. As a result, all of those future sales got pulled forward and businesses increased their capacity to meet an artificial, unsustainable demand. Now those prices and that capacity is being wrung out of the system and it "feels" deflationary. Perhaps by some definitions of deflation, it is deflationary. But not by the original definition; the one that actually matters. There has been no decrease in the money supply. It has actually increased, dramatically.

Do not confuse mispricing* and faulty forecasting (the cause of the current malaise) with true deflation. Regardless of whether prices and expectations fall back closer to reality in the near term, the real trend will soon take over and it will be inflationary. Worse than that, countries all over the globe now realize that the USA can never pay back what they have promised and are distancing themselves from the dollar. Unless a new international reserve currency is fairly quickly agreed upon, no one is going to want to accept $'s for anything. Watch what happens to prices then. Can you honestly believe that prices will continue to go down in that environment. Once people realize that the dollar is essentially worthless, prices will rise, perhaps frighteningly. Then people will scream inflation (or perhaps even hyperinflation) but it won't have just suddenly happened then, it is happening now. We will "feel" it and "see" it later (probably within the coming 12 month period).

*Currently the greatest mispricing is involved with the derivative market. If these were properly accounted for the entire U.S. banking system (collectively speaking) would be insolvent. Does that make the dollar worth more (as in deflation) or less (as in inflation)?

P.