Deflation must be avoided at all costs. Temporary deflation is OK but long term deflation is horrible. Nobody will spend money and the economy is stuck in pergatory perpetually. Stagflation is also worrisome in the near future with the stimulus spending, but deflation is what the government is aiming to avoid currently.
It must be nice to have a crystal ball and know exactly how the governments policies will affect the future. I am quite envious.
To the extent we understand the concept of "economic collapse"... is our acceptance of what the government TELLS us and we believe them. What if collapse is really, "a relative handful go belly up.. but they're the WRONG people politically." Can't have THAT! Make everyone pay so that the wrong people don't have to pay for their foolishness and mistakes.
The system won't collapse, but I think organized crime unfortunately will be a growth sector. Look at Mexico now, apart from the swine flu - the problems they have with the drug cartels are insane. I recommend Misha Glenny's latest book "McMafia" which goes into how various political and financial changes around the world triggered the rise of organized crime. The Balkans, India/Pakistan, Dubai, Eastern Europe/Russia. It's a good read.
You are way off. Deflation is terrible. Who will spend money to buy a car when it will be cheaper in a week, month, year? Who will buy a house when they know they can get it cheaper in a week, month, year? Spending in the economy comes to an absolute halt, with the exception of necessities. Nobody spends, businesses don't invest, etc etc the list goes on.
"Deflation must be avoided at all costs"... is what the government WANTS you to believe... it's just another in a lonnnng string of lies. There is no such thing as "long term deflation"... no "perpetual purgatory"... spending would resume and the economy revive once "fair value" had been returned from inflated things.
Maybe not perpetual but it could occur for a long enough time to completely cripple the economy. As they say, markets can remain irrational much longer than you can remain solvent. Maybe deflation would take prices MUCH lower than "fair value", then revert back to equilibrium. But during that time of deflation you will be crushed.