Imo, the formula is... credit bubble -> deflation (now) -> inflation with a possibility of hyperinflation.
The US Fed printing money trying to stop deflation = devalued world reserve currency. Countries are going to want to sell their huge reserves of USD and buy tangible assets. So, the dollar supply will come from printing money and the big holders wanting to liquidate. It's like a company diluting their stock by issuing more shares while the big institutional holders of that stock want to sell at the same time. China, for example, is buying a new natural resource property every week or so (worth billions each) with those dollars.
I'm happy to bet on deflation for the moment, though.
Here's an excerpt from a blog (I'm not sure of the source) that explains how we go from credit bubble to deflation and touches on inflation:
"In a normal circumstance, people borrow against rising earnings. Much of the growth of an economy comes from 20somethings entering the workforce and buying their "firsts": first car, first house, first furniture, first appliances. They lack savings but anticipate growing wages, so they borrow against future earnings. When a recession hits, they cut back on discretionary spending but continue to cover their debt payments.
In a credit bubble, people instead borrow against rising assets (stocks, houses). They buy more than their firsts; they buy second cars, new HDTVs, and so forth. When the credit bubble bursts, they are caught, since they borrowed ahead of their earnings. They have to liquidate assets (again, stocks and houses) to cover the debt. Often the assets drop below debt, and do not cover the debt. The delta has to be written off.
When debt is repaid out of earnings, money changes hands. When debt is written off due to assets dropping, it disappears. In 1929, people were able to buy stocks with 10% down and 90% margin. When the stock dropped more than 10%, the margin could be called. As the stock market collapsed, rather than pay down the margin people abandoned stocks. When they got sold at 50% lower, the 10% equity was lost and the margin of 40% was lost. It didn't change hands; it disappeared.
This is why a deflationary period follows a credit bubble, and why a depression is different in kind than a recession. In a depression, debt is written off, and money (in the form of credit) simply evaporates from the system. The destruction of credit money can dwarf the money supply; in our case, a writeoff of a mere $2T of the $52T debt is more than the whole extant supply of money in the form of currency and checking accounts.
The destruction of credit has already started - the so-called 'deleveraging' in the economy. It will accelerate as the real housing crisis hits - the potential $2.5T in the next wave of losses. It includes the huge losses GM and Chrysler bondholders are soon to suffer, and the even larger losses that will follow a major money center bank cratering.
The Fed will be proven unable to stop deflation. Bernanke has tried so many ways to push credit on the market, and to push money out there, but it is not moving. The credit markets remain largely frozen. All I can say is Bernanke is a fool and the people are smart. They know they have to cut back and save again; they can no longer live beyond their means. They won't take the credit. Hedge funds won't lever up. Companies will cut their debt levels. And so forth all across the food chain. The Fed is pushing on a wet noodle.
Bottom line: the bet to make right now is deflation, which will drive UP the value of the Dollar. As deflation ebbs, the excesses of Bernanke and Obama may come back to bite, especially if he continues his new Operation Twist and prints money, helicoptering it into the economy. There is a risk of a bout of hyper-inflation after deflation. That is the time to dump the US Peso and buy gold, as well as certain other currencies, especially those that do well when commodities do well (Australian Dollar, Canadian Dollar, NZ Dollar are examples)."