[lyudmil]

That is part of it, but I think there's another piece to the puzzle.

The private sector in general is in crisis because the banks won't lend. They won't do that because of the problems on their financial sheets - they know they hold toxic assets and they know everyone else does, so they cannot trust anyone to pay off their debt, including other banks. This means that private investment has decreased severely, which puts enormous downward pressure on the economy.

Since the private sector won't invest, the only source of investment big enough to fill the hole (which might be as big as $8 trillion), is government. Austerity is a problem because it limits the governments ability to invest, which means that you have a shrinking economy trying to make up ground, which is a losing battle, especially for the poor as you point out, since they do not have the assets to absorb the economic hit.

I should say none of this is my opinion, I'm merely summarizing Krugman, Stiglitz, and Baker, who are the three economists whose work I've followed on the matter.