Amid my recent difficulties (sickness, loss of my main computer, difficulties updating my blog software), I have been musing about the health of our economy going forward.? Before I give my opinion, I want to share a range of views that I think are worth reading:

• China Institute Proposes Weaker Yuan to Boost Growth
• The Great Depression ? Just the Facts, Ma?am
• Recession? No, It’s a D-process, and It Will Be Long
• The Chart That Changed the World — Wrong?
• More Than Two Aspirin
• Steve Keen?s Debtwatch
• No alternative to inflation
• How Government Created the Financial Crisis
• Hire Irving Fisher!

I admire the efforts that many are making in moving back to first principles.? We see analyses from Classical, Austrian, Post-Keynesian, Minsky (nonlinear dynamics), and other perspectives.

My view remains that depressions result? from a buildup of too much debt, including debt complexity.? With the recent analysis from Credit Suisse, they dissed adding together financial and nonfinancial debts, as there would be double counting.? Let me first say that there is no good measure here, but the double counting in a complex debt economy is useful to see.? When there is a chain of parties relying on debt repayment, like a set of dominoes, the system is fragile; one little jolt could change things for many.

Aside from that, our economy behaves like an? economy in a depression.? The banks lend considerably less.? Corporations as a whole cut back as aggregate demand drops.? People save more.? Prices of asset ratchet down to reflect current buying power, which seems to be shrinking every day.? The government replaces markets in the process of trying to save them.? Protectionist pressures are global, as is the economic weakness.

I don’t find the actions of the Fed or the current stimulus bill to be very relevant to our crisis, because they do little to reduce our indebtedness as a percentage of GDP.? In a credit based economy, once the banks and consumers are stuffed full of badly underwritten debt, it is difficult for the system to clear until those debts are reduced/liquidated.