A recession, coupled with a declining stock market and declining house prices, would be just typical consequences of what happens after a boom, much less the biggest speculative mania in history. I do not consider that to be deflation. So, I believe it's entirely consistent to expect a declining stock market and declining housing prices in the wake of a bubble, and higher inflation. That does not mean that inflation rates have to run at a high level initially. But over time, higher rates of inflation are what we should expect.
I believe we experienced deflation in the 1930s because we were still on the gold exchange standard, which was fairly rigorous, certainly compared with the confetti standard that we're on right now. As far as people asking, what about Japan, I don't believe Japan is a true social democracy. It may be moving in that direction, but when politicians there seek re-election, they don't tend to act in quite the same way as ours do.
And, I believe that the mindset existing in America is to never relive the '30s again. I think that explains the statements we've seen from the central bank, in terms of Fed Governor Ben Bernanke talking about using the printing press to fight deflation, and FOMC secretary Vince Reinhart talking about buying Treasuries if asset markets don't respond in a way that the Fed likes. The Fed has basically said it will not accept "no inflation," and given its outstandingly consistent record of destroying the value of the currency over time, who wants to argue with it about that? However dangerous you may think the Fed has been historically, the Greenspan Fed takes that to an entirely different dimension.
Here, it might be useful to take a moment and review the history of the dollar. What I have prepared is a chart of the purchasing power of the dollar through something that we can all appreciate. I created it from data that the Hershey company gave me, after I asked them what a Hershey (HSY) bar has cost since its introduction in 1908.