Why does Prechter think the Fed isn't printing money? If I go into the bank with $1000 cash and pay it into an account, I'm lending the bank money in return for interest. If the Fed provides liquidity to a bank by lending it money it's just the same process except they can just create the money at a key stroke. This is effectively printing money, it's just that they aren't printing up the notes and walking down to the local branch of JP Morgan Chase and paying it in. Banks use it to make loans just the same (if they want to that is).

The only difference I can see is that the Fed could take the money back and destroy it at a key stroke just like they created it whereas I would still hold the $1000 if I took it out of that bank. But why would they do this to such an extent that it would send the economy into a deflationary spiral, when this is exactly what they have been trying to avoid? Makes no sense, to me anyway.

I can't see why the PTB would let us sink into a deflationary depression and really piss the public off, after they have detroyed the public sector balance sheet trying to avoid this, then reverse course again in a couple of years and start mailing cheques out. More likely they keep pushing money into the economy maintaining the money illusion of wealth and prop everything up but destroy the currency instead.

All the paper currencies will go down together against gold, just at different rates depending on how far into the brown stuff their economies are. At some point the gold price is high enough to back all the fiat money, by which time, all the inflation has eroded the real value of the debt so that it is back in proportion to the assets and productive capacity of the economies. Then we go back on the gold standard and balance the budget after learning our lesson the hard way again. They could do this overnight, with a massive devaluation against gold, or gradually over a period of years.

If someone can give me another way out of the current mess that has chance of working in a democracy then lets hear it! Bernanke will do "whatever it takes" to avoid deflation, he is on public record as saying so. The real measure of the man will be if he can manage this, dishonest, process without causing panic amongst the public and in the markets and kicking off a collapse of the dollar into hyperinflation.