The credit collapse and the accompanying deflation and overcapacity are going to drive the economy and financial markets in 2010. We have said repeatedly that this recession is really a depression because the recessions of the post-WWII experience were merely small backward steps in an inventory cycle but in the context of expanding credit. Whereas now, we are in a prolonged period of credit contraction, especially as it relates to households and small businesses.
This rings true to me. The recession vs depression debate is really a matter of semantics, but the facts are that although markets have rebounded impressively, and big companies have regained access to credit, most of the economy and its working-age population will continue to suffer the effects of the current deleveraging for the foreseeable future.
See Also: David Rosenberg’s Outlook For 2010