Since the Federal Reserve released its balance sheet from December 18th 2008 reserve balances have steadily begun to decline. On that day they amounted to a total of $2.25 trillion. Since then they have dropped by roughly 15% to $1.99 trillion on January 29th.
At the same time retail sweeps have been falling since October 08. I have been talking about a resurgence of inflation since the money supply growth seemed to have exceeded the 3% mark lastingly. However, it looks like I called that way too early. It will be important to watch how the true money supply will develop over the next few months. Recent trends and data indicate that it might be headed back down and that all recent reflation attempts by the Fed could fail completely.
Deflation, it is true, is not easy to beat, if at all possible. It might work if the correction is a mild one. When faced with a global financial tsunami, it should be rather impossible.