Inflation versus Deflation

Anyone who's been following the economy of the U.S. and the western world generally has likely come across heated arguments between news creatures about whether the crisis will ultimately produce inflation or deflation. Keeping up with events in my own country is hard enough, so I'll limit this to the U.S. for now.

My understanding is that the 'credit crisis' and the 'housing meltdown' are deflationairy in that the value of real estate, finanical derivatives thereof, stocks, and other sorts of securities are declining. This is essentially the result of the bursting of speculative bubbles which has all but bankrupted many institutions, causing the failure of loans and the liqidation of anything and everything to raise capital for basic survival. Hence, supply explodes, fear reduces demand and their is a downward spiral in prices.

Of course the government and the Fed (note that I name them seperately) have in reaction pumped huge amounts of money into the economy, which has prevented the failure of many banks, brokerages, etc. This apparently has halted, for now at least, the collapse of the stock market and the decline in asset values due to forced liquidation.

People that have been warning about the inflationairy consequences of these 'liquidity injections' have been ignored for many reasons but often because the dollar was rising and CPI was falling. So, the news creatures now assume that the deflationairy period is about finished, we've found a bottom in the markets, and that any inflation was simply swallowed up in the preceeding deflation, never to be seen again.

Right now, the velocity of money exchange is very low so the rate at which inflation appears will be slow, but that dosen't mean it won't appear. In a related issue, the new money that saved the banks is not being lent to stimulate consumption, which is 70% of GDP. In other words, the downward spiral in the real economy is continuing as the prospects for inflation in the near future increase. So I'm expecting at best an inflationairy recession and at worst a hyperinflationairy depression. The aberation of the dollars rise over the last few months seems to be ending, with one of the largest drops ever yesterday following heli-ben's announcement.

Any opinions? I'd just like to put to rest the idea that inflation and deflation are opposing forces; i.e. monetary inflation can occur at the same time as asset deflation.