peterb, I don’t think it is really because of “deflation” itself.
I was kind of naive, thinking that deflation will be easy to solve as well: you just let the price drop and at certain point it will attract buyers and market will recover.
However, I failed to consider the political side of the “deflation”. The way I look at, deflation is really bad for the rich people (banks included) because they are the ones who are holding the assets when the music stops. (On the other hand, inflation is bad for ordinary folks as they dont’ have much bargaining power over their assets, mainly the labor costs) So naturally, the rich will fight back as a political force in time of deflation to drag onto their status as long as they could.
We should have let all the banks go bankrupcy and let the home prices drop to really affordable levels. But the banks wouldn’t let us and they are getting their ways. So like Japan, we will too have a very prolonged recovery process since the society can not efficiently clear the non-performing assets to restart again.
