The problem with deflation is what is going to happen afterwards. My guess is hyperinflation. Once prices get so low, you will have a lot of people coming back into the market that have been hording dollars. Once they get back into the market you will have to many dollars chasing to few goods, since the world has slowed production.
I really agree with you. That is why deflation is scary, it will likely lead to hyper-inflation.
As far as I know, deflation cannot cause inflation. Maybe the governments response to deflation (print money!) can cause inflation, but the destruction of value and the reduction of the money supply cannot cause the overvaluation of assets or an expansion in the money supply, except through government action.
Of course, it is true that hyper-inflation, if it happens, will happen quickly. People will be, as you say, hoarding their cash because of uncertainty. But when they become confident enough to borrow from the banks again, and the large reserves they have been stockpiling hit the fan, it is quite possible that people will quickly notice the change in money supply, and react by trying to get rid of their money too. Which would set off hyper-inflation. But this hyper-inflation is not caused by deflation, but rather by inflation, which people may not notice because of their presently high hoarding rate.
I really agree with you. That is why deflation is scary, it will likely lead to hyper-inflation.