Can they though? This would seem to be the solution, yet politically this is becoming less feasible. There is just too many angry [and organized] people in the US to allow the government to get away with more stimulus. The Fed can always QE and lend, but I think we both agree this doesn't achieve much.
Easier said than done... with the current policies they have at their disposal. A radical structural solution may be found if the squeeze is painful enough. This may involve a revamping of the current international monetary system.
A gradual ongoing deflation might be the best possible outcome for the US. Continued QE, and perhaps another stimulus [if they could get one through], wouldn't reverse the economy, but would instead only serve to stave of a complete rout in the market and economic collapse.
I agree that people can always mess things up, we would not be in this situation without many mistakes.
But US QE has obviously been very successful. 30 year mortgages are the lowest since the 1950's and credit is available for those qualifying for it. Consumers are still very active as shown by imports and retail sales being almost at levels before this crisis began. Dispite the fears at the time many borrowers resetting from teaser rates have not found they are crushed by interest payments. The various feds have shown that they have much more power than people like me anticipated back in 2007 when i assumed rates would spike higher.
Meanwhile, some prices are falling and some are rising. Officially at least there is inflation where official inflation understates actual inflation usually. And they can do plenty more QE if necessary.
Places like the Nordics and Germany are doing ok now as far as i can see. Finland and Germany will very likely have to control bank lending or risk higher inflation as the ECB looks elsewhere. House price rises in Finland with such low mortgage rates of 2% are a bit rediculous in the circumstances and need leadership from somebody.
In NZ I see South Canterbury Finance has failed. That might help the economy there because those government guaranteed depositors are now able to spend and maybe a chunk of them will spend rather than be in that situation again of worrying about losing everything. So it could amount to just more stimulus from NZ.
Americans got too one eyed - sooner or later all of that production moving overseas was going to come back and bite them, but for sure they are not poor - they just needed to better regulate their economy. And one difficulty they had there was the mafia like nature of unionisation and equal mafia like forces at work in the financial area. But different mafias feuding.