|This is fairly heavy stuff, but worth reading at least the main article IMO.|
Explains quite clearly why bad debt overhang must be written off (to the loss of bondholders) or inflated away (everyone with money loses a bit in proportion to how much money they have). That's Austrian medicine or Keynesian medicine in a nutshell.
And we must do things differently from here with regards to investment. THAT is the point of recession, what has brought us to this pass, not the irresponsibility of consumer borrowers (there will always be irresponsible people asking for loans; bankers are paid to know better and say no...especially central bankers). We suffer unemployment because the monied refuse to change their ways. And the situation cannot change until they do.
Unemployment is not the way out of a debt trap. And the kinds of austerity that are being proposed are not ways out of unemployment. Either the austrian medicine or the keynesian medicine must be taken. The sooner the better. Then we can move on with new investment to build a sustainable future.