It could be many things. It could be a genetic temperament problem that is worse in the puppy that it was in her dam. It could be that your pup is going through a fear stage and just needs to have you work through it with him. It could be that your dog has suddenly decided that you can't protect him and he needs to protect himself, in which case the leadership/bonding isn't where it should be at this point. And it could be that too much of a good thing is not so good, and the pup needs a little breather and space and to mature a bit.
I disagree with your trainer. Your dog is not going to improve in a vaccuum. I also disagree with your breeder somewhat. I would not force this dog into situations he is uncomfortable with using a muzzle. Nothing wrong with a muzzle if your dog has bitten or is very likely to bite people. But I think it can make an insecure dog more insecure.
I do agree with getting him out there, but staying farther away, and taking it slow and doing just a little bit every day. Try to stay far enough away that your dog doesn't react like a lunatic. If he does, give a quick tug at the leash, Eh! It's just a ____ (dog, boy, girl, man, lady) and KEEP on walking, not necessarily closer to the object of his frustration, but not away either. Try to keep the loose leash, but do not get close enough to anybody so that he is able to make contact. Eh! and keep on going.
As you are working with him, near but within his comfort zone, drop treats for him, so long as he is not reacting. If people are walking by and you are 10 feet away and he is taking chees out of your hand even though he knows there are people there, great. Keep going. And slowly decrease that distance. Don't say or have strangers do anything. Ignore them. Hopefully you can get your dog to that point. Down the road, when he seems fine with people walking by and isn't acting like a nut when dogs are walking with their people, then you can start working with dog-savy people that your dog does not know. With treats, and slowly.
For now though, I think just working within his comfort zone, and slowly increasing his comfort zone is where you want to be.
At the same time, look up NILIF to improve your management/leadership, join dog classes, once a week, keep it positive, lots of praise -- set your dog up to succeed and praise/treat him for doing so to increase the bond between you and him and to increase his confidence while working around a small number of regular dogs and people.
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