Number 3 will not create inflation. Not in all cases and not in our current environment. That is a myth pushed by the banks in order to keep the current system in place.

Debt spends the same as money. We have already had the inflation, paid for with debt. Now the debt system is becoming unstable and will lead to deflation unless we put non-debt spending power in the average persons hands.

Read Keen's site, he explains the situation:

http://www.debtdeflation.com/blogs/manifesto/

Most economists view debt as a wash. "We owe it to ourselves." But, at Keen demonstrates, that isn't the case. We need a debt jubilee if we want the economy to function properly again, and he, alone and mocked by any mainstream economist who actually paid attention to him, came up with a modern, fair way to do it.