[T]hose who are creditworthy do not wish to borrow; those who want to borrow are not creditworthy...This is the problem in a balance sheet recession. Policymakers, who overwhelmingly have banking backgrounds, want to solve these problems through the banking system - by setting interest rates and letting banks create money by lending.
However, banks cannot create net financial assets - every time a bank makes a loan, it creates an equivalent liability for each asset it creates. So if private sector balance sheets are strained, banks don't lend, no matter what the interest rate is and no matter how much the government might want them to.
The solution to this problem is fairly simple; unfortunately ideological orthodoxy tends to assume it away. From a different part of the same article:
Mr Osborne repeated the orthodoxies of the government’s approach to fiscal policy (it needs to be tight), monetary policy (it needs to be loose) and debt (it needs to be reduced).The problem is, in a balance sheet recession, if fiscal policy is tight, balance sheets stay strained because no net financial assets are being transferred to the private sector, and thus no amount of "loosening" of monetary policy (which really just means low interest rates) can actually produce an expansion of private credit.
The most crucial part of the quote, though, is that bit at the end about debt needing to be reduced. Whose debt? For private balance sheets to "deleverage" (that is, to pay off debt) government debt must be increased. There is no other source for the money needed to pay private debt off - that's what it means to be a monopoly issuer of a currency.
The simplest way for the UK and US to jumpstart their economies would be to target the people whose balance sheets are in the worst shape - the unemployed. The government could hire the unemployed to perform useful work in their communities for $8/hr until such time as the private economy was ready to hire those people again.
It really is quite simple, but orthodoxy has a way of blinding people to obvious solutions that don't fit their prejudices.