While most are fighting as hard as they can the supposedly coming deflation (like Helicopter Ben Bernanke), and that the whole debate is understanding how bad the deflation is going to be, deflation doesn't seem so obvious to me.
One thing is for sure: asset prices are collapsing and after a major credit bubble burst, a cleansing detox (also known as deflation) is nice to have. Ignoring the bogus and manipulated CPI which I do not trust and consider irrelevant, it still seems that prices are declining. They are not declining directly as the figure marked on the price tags but rather I see more and more special offers - it's like the whole superstore I go for grocery shopping is on sale. But still, I think prices are sticky on the downside. They tend to decrease with a lot more difficulty and pain than when they rise.
Anyway, that's not even our concern. It's important to not confuse cause and consequence. Prices declining is only a consequence of deflation, it is not deflation itself. The definition of deflation is a decline of the monetary base which results in the reevaluation of the currency and hence in a decline in the general price levels (BTW: Wikipedia's entry for deflation is WRONG, so is Investopedia's so are MOST OF THE DEFINITIONS YOU CAN FIND ON THE WEB. Just check this link to see how poorly deflation is understood. I digged the first 3-4 pages of results on Google and still coud not find the proper definition). Wikipedia contains something almost correct about deflation: Alternatively, the term deflation was used by the classical economists to refer to a decrease in the money supply and credit; some economists, including many Austrian school economists, still use the word in this sense. Really? Some people like the Austrian economists still use the term for its meaning and do not confuse cause and consequence?
So now, with the proper definition of deflation in mind, looking at this chart should give us the big picture about whether we are going to see deflation or inflation in the near future (please note that the data is as of 1st of Nov, and the Fed has been printing like crazy during November):
Also, the data gathered by ShadowStats.com show that even if the growth of M3 is decelerating, M3 is still growing at an annualized rate of 8% while we are now seeing a major spike in the growth of M1 (reaching almost a 12% yearly growth) and the growth of M2 is also accelerating.
I don't really want to draw a conclusion about inflation/deflation yet and look like a fool later, but to me it is not obvious that deflation is going to hit the world, specially outside the US, since the currencies are collapsing against the USD (all but the JPY). It is not unlikely neither that the foolishness of the central banks and politicians will make things worse and worse, and probably make their dream of sustained inflation turn into a nightmare of runaway inflation.
An interesting article about deflation is available at the Mises Institute here.
Finally, do not forget, our financial system is safe and sound: