Earlier than many, I have written that our period of economic weakness was a depression, not a recession.? Here are a few examples:

• Recession or Depression?

• What is a Depression?

• It?s Called a Depression

Depressions are ill-defined.? Some say that it is a 10% decline in real GDP.? My view is more qualitative.? When the banks can’t lend, it is a depression.? We didn’t call 1973-4 a depression; the banks were stressed but not dead.? Our banks are in worse shape now, and the level of bailout/stimulus needed to make them willing to lend freely is staggering.? (Aside from that, do we really want to dig ourselves into a deeper liquidity trap?)

We have others willing to declare a depression, for example: IMF Chief Says Nations in ‘Depression’. We have others willing to blame the weakness on flawed monetary policy and flawed credit regulation.? That piece, from the author of the Taylor Rule, is the best I have seen from a reputable mainstream economist.

I still hold to my view that depressions occur not because of trade wars, tight fiscal policy, or tight monetary policy.? Those factors have negative impacts, but depressions occur when overall debt levels get too high, with layers of debt upon debt, allowing for cascades of failure to happen when the private enterprise system can borrow no more, and cannot service the debt.

I have not read the Credit Suisse report cited by Paul Kedrosky, but I am similarly dubious that their analysis of total debt levels makes a difference.? Consider the levels of leverage now versus the 30s, and consider whether the banks could lend or not.? To me, they are peas in a pod, and similar to Japan in the late 80s.? Leverage builds up, and eventually can’t be serviced.

Few want to talk about the event that I call “The Not-So-Great Depression.”? Our present circumstances may end up better or worse than the Great Depression, but it will end up worse than recessions in the latter half of the 20th Century, in my opinion.? Be wary, and play it safe where you can.