Simon Johnson and Ken Rogoff, both ex- IMF Chief Economists, point there is a need to let inflation shoot to manage the crisis. Rogoff article is here and Johnson’s is here. They talk about inflation in developed economies.
How much inflation? Johnson says:
We need to have significant inflation: 2% is not enough to improve solvency significantly, and we may experience 5-10% for a year or two. Inflation has major drawbacks and creates its own risks, but compared to the alternatives, it would be a relief.
Rogoff says:
Moderate inflation in the short run – say, 6% for two years – would not clear the books. But it would significantly ameliorate the problems, making other steps less costly and more effective.
True, once the inflation genie is let out of the bottle, it could take several years to put it back in. No one wants to relive the anti-inflation fights of the 1980s and 1990s. But right now, the global economy is teetering on the precipice of disaster. We already have a full-blown global recession. Unless governments get ahead of the problem, we risk a severe worldwide downturn unlike anything we have seen since the 1930s.
This is a very complex world we are living in. In order to avoid a 1929 situation (the severity of the crisis seems to have surpassed all previous crisis except 1929), both advocate high inflation scenario. Say, we save 1929 situation by huge pumping of money and fiscal stimulus. If inflation is managed fine. If not, then we have 1970’s inflation scenario which interestingly was controlled by Volcker by forcing another recession.
How do things end? It looks like a real vicious circle right now.
Mostly Economics 
