Two Face: Inflation Vs. Deflation

In the world of Batman, the public good is constantly under attack from Harvey Dent, aka Two Face: the insane arch criminal that makes decisions based on the flip of a coin. Unfortunately for those dependent upon the flip, each side of the coin is the same because two face likes to "make his own luck."

Today the world economy is under attack from two different scenarios that look different at face value but may lead to the same result for nations that are heavily indebted: deflation and inflation.

Over the past two years the debate has raged between inflationary and deflationary camps sparring over how the world economy would suffer. This talk has recently come to a crescendo as much ado is being made about the upcoming G20 meeting in early November where many countries are expected to discuss the role of quantitative easing in their internal economic policies.

Some feel that these nations will be forced to curtail the expansion of the money supply by abandoning QE and raising interest rates - end result massive deflation.

Some feel that these nations will be forced to continue QE as the only means to fund themselves - end result massive inflation.

The common ground between both is that the fundamentals of the world economy are far from healthy.

Is it not becoming more clear that both scenarios may lead to the same result for those countries which are heavily indebted? That perhaps we have already made our own luck?

If the intervention is stopped, the financial system faces potential systemic collapse - much of which is guaranteed by these nations' governments. With a collapsing tax base, the interest payments on the debts become untenable (both public and private) and the default scenario emerges - forcing a devaluation of the currency and isolation of country from trade/financing with others. (This is a much different scenario than deflation in the Great Depression - the level of personal and governmental debts for countries was minimal if not nonexistent - same story in Japan in the 1990s).
END RESULT - CURRENCY DEVALUATION

If the intervention is continued, the integrity of the currency is undermined by both supply and confidence as holders of currency try to unload it, rushing to the exits like somebody yelled fire in a movie theater.
END RESULT - CURRENCY DEVALUATION

One thing we can all agree on is that two face has a gun to the world economy's head.

Let's hope there is an economic Batman out there somewhere to save us.