Can government fix the economic problems that it caused?

Wrenching deflation is the inevitable aftermath of prior massive inflationary bubbles. A bubble can't burst if a bubble doesn't exist. The sole cause of economic bubbles is government. Inflationary monetary policies by the central bank -- such as the Fed holding interest rates artificially low, thereby overstimulating fundamentally uneconomic investments -- are the primary cause of bubbles.

Government's fiscal policies of tax and spend also distort production into unnatural, uneconomic patterns. The inherent flaw in using government spending to guide and shape production is the same one that plagues socialist economies -- namely, that the government cannot know what the people want as clearly as the people themselves know. Inevitably, government overstimulates production of things that people wouldn't freely choose while depressing production of what the people do want; hence, government makes society poorer than it otherwise would be.

In short, we wouldn't be faced with a potentially cataclysmic deflation today had it not been for decades of foolish government policies that created bubbles.

Economically speaking, inflation is like heroin addiction. We enjoy the "highs" when the bubble inflates and the good times roll, but underneath the surface, our health is eroding. The addict needs to suffer the wrenching pains of withdrawal in order to recover his health. Similarly, in order to get reestablished on a sound economic footing, our society needs to endure the short-term pain that accompanies absurdly overpriced assets crashing back to earth, while the economy is purged of decades' worth of malinvestments, uneconomic patterns of production, and unfathomably massive amounts of unpayable debts.