[quote=threadkiller] It seems that in order to have recovery we must first have inflation. [/quote]
To have recovery, we must have lower unemployment. We can reduce unemployment levels by increasing aggregate demand. We increase aggregate demand directly, by creating jobs, or indirectly, by encouraging consumer spending. We can stimulate consumer spending by tax cuts or by increased benefits. Direct job creation is best, unemployment benefits are worse, tax cuts are worst.
In Econ 101, none of this translates into (price) inflation unless and until the economy is near full employment, which is not the case today.
In the real world, one has to worry about exchange rates and import/export issues, but Econ 101 approximation should work well enough.
