Deflation vs Inflation Battle For Supremacy

From Elliott Wave International:

How high was the mountain of debt/credit? In 2008, it reached its zenith at $65 trillion. This chart from the January 2011 Elliott Wave Theorist shows what has happened since:

And a quote from Conquer the Crash:

"Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt)... Elliott wave expert Hamilton Bolton... summarized his observations this way:

'In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following:

(a) All were set off by a deflation of excess credit. This was the one factor in common.
(b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke.
(c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance.
(d) None was ever quite like the last, so that the public was always fooled thereby.
(e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.
(f) Credit is credit, whether non-self-liquidating or self-liquidating.
(g) Deflation of non-self-liquidating credit usually produces the greater slumps.'"

From Contrary Investor:

Consider this chart from our friends at Contrary Investor and consider the implications.

While the S&P rises toward the highest heights of recent memory, the growth rate in the economy is the lowest of any non-recessionary period of the last 65 years.

And this in an environment where the US is running annual budget deficits in the neighborhood of 8% of GDP!

Let's do some quick arithmetic on this subject for some perspective.

2% nominal growth minus 8% government overspending (deficit) equals -6% growth in the real economy.

So my question is this:

How are we going to have an inflation problem, if the debt is so high, and deficits so large, that other credit nations become reluctant to continue to finance huge deficits?

I see austerity coming soon.