So how do we get to a position of deflation if there is an infinite amount of cash available? For ever? And ever? And ever? For everyone?
The answer is we will get both. While the printing presses work to make people and companies feel better off you can't get deflation. There are 2 feel good stages to this money printing fairlytail, first the CBs lend into the banking system. This feels good, who doesn't like cheap loans. But even with lax lending standards, eventually banks wont lend these funds on because companies will have too much existing debt to borrow even more. They become an insolvency risk. In the second stage the CBs buy government debt and the government just gives this money away. What could be nicer that this, and it's a process that recapitalise companies and individuals, so the banks can lend even more to them. This is all inflationary, but how long can this process go on?
The fly in the ointment is confidence.
While people and companies feel financially sound, printing keeps the ponzi scheme running, but with each headline about unemployment, debt levels, extraordinary measure by CBs and governments etc confidence is effected. When companies and people feel financially threatened they will hoard cash. The loans and the giveaways will not stimulate the economy any longer. On a relative basis, companies will not invest and people will not spend. This is deflationary. It will hit the stock market as the reduced earning power of many companies in this economy is realised and finally the true value of companies will be reflected in share prices. Gold and silver may also fall because of liquidation (for margin calls), but not for long because cash, at least for the smart, will not be the place to store proceeds. As this is happening the only trick the gov and CBs have is to ramp up the money printing . This inflates the typical bubbles (after their initial purging) but as hoarded money looking for a home meets newly printed money it may also cause hyperinflation. Hyperinflation is just everyone realising that everyone has money.
Finally if the government see the potential for hyperinflation and decides to take the pain now to stop it... the printing stops, interest rates go up, asset values fall and we get liquidations and deflation of everything. Rising interest rates at this point cause a government debt crisis. There is no good outcome no matter how I look at this mess.
