Two Modes of Deflation

One day back in early 2001, I was listening to an interview on the radio with a band called "Our Lady Peace" who had just finished their album "Spiritual Machines."  While I don't think it's their strongest work musically, I found the reason for the album title to be intriguing.  They based the whole thing on a book by Ray Kurzweil, called "The Age of Spiritual Machines."  Since I was a fan at the time, I decided to check the book out, and ordered it online.
When I finally got around to reading it, I found the content to be both terrifying and exciting at the same time.  The terrifying part, that we'd have machines that can think like people within 20 years of its writing for less than $1000.  The exciting part, that we'll have things like smart phones (which I found equally ridiculous at the time) by the end of that decade.  So far all of his predictions have come true.  We've all seen the advent of the iPhone and phones like it (full-blown computers in your pocket were a crazy idea back in 1999 when he wrote about it).  Recently, Watson played the greatest champions of Jeopardy, making them look like idiots while at the same time seeming like a child.  We've started to see computer chips in our clothes, vast wireless networks and on and on.
One of the major trends that he's been predicting is the idea that all of this advancement of information technology will generate deflation.  The thing that makes all of this technology possible is that we have learned how to make it available at lower and lower costs.  And because all things are trending toward information technologies, we'll see this deflationary trend overtake any attempts at generating inflation by the central banks of the world.
Because of Kurzweil's predictions about deflation (which we have yet to see across all economic strata), I searched more on the idea of deflation and found another deflationary argument in a book by Robert Prechter called "Conquer the Crash."  His arguments are based on fractal geometry as it's shown in human behavior, seen in the ups and downs of markets.  The moods of the masses do follow predictable patterns that have been shown time and time again, but I've had little success in actually predicting anything using his models.  Regardless, he has had success in predicting many (not all) major market movements in the last 40 or so years.  He's also predicting a major deflationary event, even bigger than the one we saw in the last recession (2007-2009), any time now (we're due for a major downward trend in mood now).  The way it works is that when people stop borrowing money, the currency pool has to shrink, because the majority of dollars are represented by debts that people owe to each other.  This will increase the value of the dollars, making everything "less expensive."  The caveat is that most people will have less dollars too, so its effects will be nullified over the long term (but people with large debts or their creditors will suffer the most in the short term).
If I remember correctly, somewhere in this same time-frame (the present decade) is about when Kurzweil predicted that his deflationary effect will overcome other economic drivers of inflation.  We'll get more goods, more efficiently, driving down the price via supply.
Kurzweil's and Prechter's methods of extrapolation have little to do with each other, but it's interesting how they both came to similar conclusions using different models, with coincident time-frames.  It's also interesting to contemplate whether these two independent drivers of deflation might feed off of each other, generating the mother of all deflationary events.  The last time we saw anything like this was in the depression era.  The type of deflation that these guys are predicting would make the depression event look small in comparison.
Given the magnitude of deflation that both men are predicting, I could see this type of event changing the way that currency is administered (meaning that the dollar and all other accepted currencies would be destroyed in the process).  My guess is that whatever form currency changes to will be a more effective method than the gold standard at preventing wild fluctuations in currency value (deflation and inflation).
The problem with all of this is that even if both futurists are right, and we do see both deflationary effects simultaneously, it will be impossible to see how it will all play out.  Prechter is very pessimistic.  Kurzweil is very optimistic.  I'm somewhere in between.  I think that over the short term, things will seem very bad.  Trillions of dollars of wealth will seem to have disappeared over night.  A lot of people will loose their shirts.  But over time, people will realize that the debt that those trillions were represented by wasn't of any added value in the first place.  They'll also see that their labor will begin to buy them more stuff (more goods for less effort).  At that point, the reset button will have been pressed on the economy, and the pendulum will have begun to swing in the other direction.  My hope is that the upward swing will happen sooner than later.