"...if lots of bad debts have been incurred, and if the amount of time it will take to wind them down and return to healthier levels of consumption and investment is too long, it is better that there be an orderly writeoff of a large chunk of the debt overhang. Alas, this was not central to the bailouts of the last two years as it should have been, even though the financial system had accumulated trillions of dollars in bad debt. Either we do this in a rational, civilized way, or the economy will sputter until default breaks out chaotically". Link.
What have we learned from Japan? Apparently, nothing.
The single biggest reason Japan's lost decade wore on was an obdurate refusal by comically textbook crony capitalists to discover and eliminate toxic debt.
Sound familiar? It should. Suffice it to say that little to zero effort has been made in Europe or America to do likewise. The toxic load has merely been shifted from the private sector's balance sheets, to the public sector's.
All that does is transfer risk - not eliminate it. Yet, until it's eliminated, demand and investment cannot feasibly grow, and people will resort to all sorts of risk management tips and tricks (like deferring consumption, etc, etc) - which are, you guessed it, the spark of deflation.
Oh, wait - that sounds just like Japan...
So perhaps, then, you see why I used to call all this, circa 2006, the Macropocalypse.