The Big Picture has an intriguing post on the solution to all this mess. I'm trying to think of the real world equivalent of this. It seems to go something like this: The gov't gives money to mortgage holders, who then pay off their mortgages thus transferring the money to the banks and getting rid of all the debt in the system, and the government takes back the money they gave mortgage holders in the first place through taxes on the banks. The original mortgage holders now own houses outright, but their houses are worth far less than the original mortgage values.
But of course the gov't is not taxing banks right now...quite the opposite, in fact. Which leaves the government, i.e. you and me, with a load of debt.
Inflating our way out seems similar to this scenario, as well, though you can't inflate your way out of debt if you don't have an income stream that keeps up with inflation. With 15.9% underemployment, that's just not going to work for the US consumer.
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