Many economists and other observers believe that we risk a new Great Depression. It certainly seems that way given how over leveraged the system is and how much of that will have to fall. The big-3 automakers will have to either shutter their doors or restructure (through bankruptcy) their operations to a production of less than half the current. There are too many retailers, too much stuff on the shelves not moving, too many houses, too much consumer debt, mortgage debt, and government debt.
Outstanding obligations come to some 200+% of GDP depending on how you measure these things.... And yes it is silly to calculate the Social Security, Medicare etc at $53,000,000,000,000 but that's what the handwringers tell us.
So there could be a collapse of economic activity, everyone buried under the pile of debt and standing in breadlines. That could happen.... but it won't.
It won't because we did learn a couple of things from the Great Depression among them the importance of battling deflation, of avoiding the collapse of the financial system, of the risks of a liquidity trap, etc. So the powers that be will stuff money everywhere until prices rise, they will do it through seniorage and monetization in the guise of fiscal deficits and Central Bank lending. They will allow inflation to clear out all of our obligations and get us back on track.
Inflation paid for The Great Society, the Vietnam War, and the imbalances incurred by the Gold Standard.
This inflation will make people right-side up on their mortgages, it will whittle down the costs if social programs. It will eat away a goodly portion of our national debt and burn off the value of the toxic paper the government will be forced to take onto its books.
It will hurt and those of us who do not have many debts now will be in worse shape on the other side. But it will bail out everyone who needs it.