Inflation or deflation - which is more likely?

In past articles on our current economic crisis I've pointed out the grave danger of inflation (due to massive expansion of the money supply), and also deflation. I've found an article by David M. Edwards that does a very good job of summing up the respective threats involved, and assessing the possibilities of both in the US economy. Here's an excerpt.

The major deflationary force in the economy is still housing. There is a housing glut in the real estate market that is putting incredible price pressure on residential real estate.

. . .

The main issue going forward is the foreclosure glut. According to the Chief Economist at Zillow, there are 2.2 million homes currently in the foreclosure pipeline, 1.9 million 90-plus days delinquent, and about 500,000 sitting on the books of firms and GSEs as Real-Estate Owned (REO). If we assume an average mortgage with a nominal value of $100,000, which is not totally unreasonable, you are looking at $220 billion worth of housing already in the foreclosure process, another $190 billion ready to go, and $50 billion sitting on banks balance sheets. If this entire stock of housing were to hit the market tomorrow, prices would literally collapse. There are already too many homes on the market and too few buyers, which can be seen in the Case-Shiller tables below that break down the market into individual Metropolitan Statistical Areas. Putting the foreclosure glut on the market would cause buyers to be outnumbered by sellers many times over and prices would be forced to adjust.

The doomsday scenario would be almost laughable as loan-to-value ratios (LTVs) would easily surpass 100% economy-wide, average American workers would see the equity in their homes disappear in no time (which is the primary asset of many households), banks would then begin to call in loans en masse, and we would enter a truly vicious cycle of deflation.

. . .

I just spent a long time arguing why there is a large deflationary force in the economy, but I don't entirely disagree ... that there is actually a massive inflationary pressure in the economy. There are actually two forces at work that in real terms affect the American consumer in the same way--by reducing his/her real wealth/income.

• The first is the downward price of housing, which reduces the largest financial asset of many households, the equity in their homes.
• The second is the upward pressure on the price of commodities caused mainly by the increase in the money supply.
  

The Federal Reserve has spent about $2.1 trillion dollars on quantitative easing programs since 2008, which has put downward pressure on the dollar in the currency market and has led to price speculation on commodities.

There's more at the link. Very worthwhile reading.

Peter