Robert

I can see your point. I think a reluctance to borrow on the part of the consumer, who is now worried enough to think twice before taking on more debt, might be problem in a reflation effort. There is also a marked tightening of lending standards which means even those who want to borrow cannot qualify.

The way around this is to socialise the spending. The central bank is the lender of last resort and the government is the borrow of last resort. I can imagine huge infrastructure projects being planned (which we need in the UK as well as the US, especially in the energy sector), targetted tax cuts and increases in benefits at the bottom end of the income scale (the poor spend anything that comes their way), government backed mortgage lending with various wheezes to help people to qualify (shared equity deals, 50 year loans etc).

All this could be financed by fresh treasury paper bought by the central banks, i.e. highly inflationary, but just the kind of thing you might expect from desperate politicians fearing for their seats. As the new money finds its way into people's bank accounts the banking system is recapitalised and everything starts to look rosy again...

Regards

Chris