There is little chance either will come to pass right now.
The US can't create or sustain moderate inflation without a little help from its friends. This insight falls more into the category of "accounting identity" than "brilliant reasoning".
There are many countries that peg their currencies to the dollar in some form, but China is by far the biggest, most important, and most notorious. But even Japan has a ceiling beyond which they won't let the JPY rise. These pegs are not difficult to defend because their currencies are pegged too cheap, rather than too rich. In fact, China absorbs massive amounts of USD in their interventions to enforce that peg. Should they ever need to fight the other way, they can sell off USD and buy CNY until the crisis has passed, and the permanent, underlying current account surplus takes care of the problem.
Japan and China do not have any lasting inflation problem either, though both caught an inflationary wave during the commodity bubble. They have certainly both experienced deflation in the recent past. The economies survived, with a little discomfort. There is very strong structural deflation in both economies, with extraordinarily deep capital, and in China's case at least, virtually limitless labor. Deflation appears to be returning and it probably doesn't present a severe threat to either economy.
Deflation does pose a dire threat to the US economy. With immense debt outstanding to GDP, far higher than anything seen before, the US economy may have approached the Chandrasekhar limit of debt. Debt-deflationary spirals are not fun. Even worse, we have very large, persistent trade deficits and a poor NIIP.
The US has also invested very little in tradeable sectors. When we had all the cheap funding in the world, we built houses in the Inland Empire and bought a lot of cars. Why did America choose to consume or invest in residential real estate, rather than a machine shop in Michigan? Many ascribe that to avarice or stupidity, but it's unfortunately more likely a result of American workers and capital being totally uncompetitive at current and envisioned pricing. As evidence, American exports did finally start to respond a bit when the dollar index sunk a long way, but they've begun to fall again now during the recession, while the dollar's rising again. American goods and services need to be cheaper in other countries to be desirable.
The dollar can't weaken against major competitors, though. China, Japan, and other pegging nations prevent it. China probably can't really break their peg without bankrupting the PBoC, which holds dollars as assets and yuan as liabilities. Much of the world, if revalued, could no longer rely on exports to America and Europe for growth, sinking into deeper -- more deflationary -- recessions of their own. They will probably not revalue any time soon.
China has also demonstrated the ability to sterilize, effectively or at least marginally so, extremely high levels of intervention. Enough for real exports and hot money when the global economy was fine, and certainly enough in our trade depressed world. I believe that through greater bond issuance and raised required reserves, they can effectively sterilize a really, really big pile of yuan. Japan has started running a trade deficit.
Why Inflation's Impossible
Now, let's imagine Bernanke has a magic wand that he can wave to set the US inflation rate to 12%, in order to increase wages and revenues and make debt and prices manageable.
A year passes. Everyone charges 12% more dollars for everything: labor, haircuts, cheeseburgers, and so on. That's okay, because everyone earns more too.
But every USD is still worth 6.83 CNY, and there was no inflation in China. That means the price of US labor, haircuts, and cheeseburgers is 12% higher in real terms in China. They can't buy as much. That also means the price of Chinese t-shirts is 10.8% seems lower than it was last year, because Americans are all earning more. I'll be more likely to buy things made in China.
China now exports much more to the US. With the proceeds from these exports and the intervention, they would buy more US assets, but less relatively expensive US goods and services. The trade balance worsens, the imbalances worsen, US workers and plants become even less competitive, China invests more in tradeables, US consumers go further into debt, and so forth. Less employment, less exports, more debt, stronger deflationary forces. Next year, things grow exponentially worse.
Unless the US miraculously becomes more efficient and productive, to avoid this scenario, the US must have a weakening real exchange rate (REER). Because currency pegs prevent revaluation, that means China and Japan must run higher inflation rates than the US. Twisting it around, in current conditions, the US cannot run a higher sustained inflation rate than China, Japan, and others.
The US must either:
1) Persuade China, Japan, and others to allow their currencies to appreciate dramatically so the US can abruptly default on some of its debt to them, and reduce their exports considerably;
2) Persuade China, Japan, and others to allow high domestic inflation. If the US wanted 12% inflation domestically, it might ask for 16% or 17% inflation in China, if not a bit more;
4) Suffer through deflation.