buster,
Very interesting theory on the balance sheet recession. However I don't think this is similar to the US situation right now because:
1) The US is a consumption driven economy and other nations peg their currency against ours, and when we try to devalue our currency to reduce import or pay down debt (devalue currency jobs at the expense of other nations), the export driven nations like Japan devalue their currencies as well, and we end up with hyper inflation.
2) A huge portion of Japan's private sector debt was financed from the 80s economic boom and the money they earn from export, but a huge portion of our debt is foreign owned, so in the end if we walk away and let the banks and foreign sovereign fund collapse, it wouldn't impact us as much as Japan would have. A lot of investment banks made huge amount of money (i.e. Goldman) by buying CDS that they think would collapse. These CDS liability got transferred into US debt directly (through bailout or government guarantee) or indirectly (through banks loss and unpaid CDS claim that bankrupt investors and banks). In the end, Japan was on her own paying off the hidden debt but the US have the whole Latin America, Taiwan, China, Hong Kong, and India to bail us out, so we end up better off than Japan was.
3) The net value of Yen isn't considered because much of its investment is in the foreign nations (Brazilian government bond is a popular housewife saving bond), and they are probably the only nation on earth that would rise in currency value during a huge disaster. The tsunami and nuclear crisis revealed how much indirect dumping they have been doing to the rest of the world.
I think the US situation is more of a overpriced currency being propped up by the exporting nation. A gradual devaluation would have improve the economy by increase in employment and export / import ratio, but due to the recession and the sudden Euro sovereign bond collapse the devaluation (via debt rating and etc) is sudden. There are still lots of debt in the US: foreclosed home that is put off to avoid market shock, bailed out AIG or its CDS exposure (if not bailed out), banks balance sheet due to exposure to sovereign debts, etc, and that would not really be paid off unless the import/export ratio is reduced and the living standard in other export nations caught up and their government decided to drive their own consumption rather than relying on our consumption.
Politicians are trying to drag it out for as long as possible (at their opponents expense), but some investors are trying to shorten the process (via pricing collapse and inflation) which would be good for the population in debt (via foreclosure or default by inflation) but not to those who own the debt (foreign government, banks, retirement funds, hidden money in Swiss/Bermuda/Bahamas accounts, hedge funds, etc). Capitalism do work, just not always in your favor.
No matter how we reach the eventual stability, the US labor will be cheaper, standard of living lowered (to afford the reduced labor cost), China will be richer and they would demand higher standard of living and increased salary. The golden rule will still apply across the world with rich, middle, and lower income caste doing what they have been doing since civilization started.