Peter Schiff is wrong about these problems being restricted to the USA (but he is right about the rest of it). Housing bubbles are at the root of the problem, and these have occurred in most of the first world, for very similar reasons. One being investment money from countries like China, Japan, and Saudi Arabia. Another being environmental concerns resulting in urban growth restrictions that prevented supply responses to demand for housing, and forced prices up. Lastly, government's taxation policies also contributed to housing looking like "the best investment" for many.

There is widespread denial about these factors, all over the world, and especially denial about the collapse or impending collapse of house prices and mortgage equity levels; for which the USA is merely a pattern (albeit a major one), not a unique case.
 

Bob,

Can you address Mish's argument that a huge credit contraction will overcome the inflationary pressures of increased bank reserves? At what point does the inflationary scenario unfold? Are we just waiting for bank lending to resume?
 

Anon,

Yeah there's something fishy with Mish's treatment of the Great Depression and deflation etc. For one thing, the money supply did shrink during the early 1930s, just like Friedman and Schwartz said. Mish is showing the FRED graph of the monetary base, which does not contain checking deposits. So the total money stock, say M1 or M2, fell when prices fell. (Unfortunately FRED data on M1 or higher aggregates don't go back that far.)

In contrast the the Depression, the stock of money has been growing, because Bernanke thinks that shrinking money is what caused the Depression. Off the top of my head, I think M1 in Dec 08 was 17% higher than M1 in Dec 07.

However, prices are still flat or falling, because the public is holding higher cash balances out of fear.

So yes, if banks start lending again--and they will, either because of nationalization or to avoid it--then the process will be amplified. M1 already has been growing, but it will take off like a rocket once banks lend out the reserves.

And people will say, "Who will borrow the money?" but the answer is, the solar panel manufacturer getting a billion dollar subsidy.

And then the question becomes, will Bernanke take away the punch bowl just when unemployment starts coming back down? I very much doubt it.