I may have found a common ground for us: The economy is contracting not because of actual deflation, but FEAR of deflation.
This would reconcile both what the numbers show and what wise men (like Weiss, Fekete, Schiff, Ferguson, Soros, Paul, Mises, Friedman, .....and Auricluny) and women say about the irrational, wild and raw gyrations of our behaviour in the markets and the necessary irrational swings that follow.
If you accept this, then you can actually now make a clear and distinct proposal as to how to address this. A little of bit fear may actually be useful in that it scares the living day-lights out of the shop-till-drop and greed-is-good crowd in this country.
Beyond that, to not spoil it for all of us more moderate folks, (ie the majority), I'd say this: Apples to apples and oranges to oranges. Reflate in case of deflation, but be transparent in case of fear......exactly your two points!
We always use quotes but rarely live by them: "All we have to fear is fear itself". He was so right about that, bless his soul!
I propose to you, psa150vs6, that there is no balance sheet problem that cannot be fixed. Andrew Jackson proved it in 1832 and so did the American people over and over again throughout the history of America. What cannot be "fixed" is fear. Fear must be experienced in the heart of man and cleansed in each and every own's way to one's own peril or triumph. Validation of fear followed by clarity however, is the best policy.
You question below regarding the transmission of monetary base expansion to demand-inflate economies is a hotly debated topic. Both bank insiders and outsiders are struggling with this.
Even if banks carry-trade these reserves out of the US, government deficit spending to stimulate public works will transmit Dollars by-passing the banks. We now live in the Social Republic of America, where the government directly funds business, banks, car makers, insurance companies, and infra-structure building.
Lenin would look at us noddingly with a smirk and walk off into Communist heaven chatting with Marx and Keynes.