"We know what causes a recession to metastasize into a slump. Irving Fisher, the paramount US economist of the inter-war years, wrote the text in 1933: "Debt-Deflation Theory of Great Depressions".
By Ambrose Evans-Pritchard
Last Updated: 6:34PM GMT 18 Dec 2008
"Such a disaster is somewhat like the capsizing of a ship which, under ordinary conditions is always near stable equilibrium but which, after being tipped beyond a certain angle, has no longer this tendency to return to equilibrium, but a tendency to depart further from it," he said.
Today we call this "Gladwell's tipping point". Once it goes, you can't get back up. This is why the Federal Reserve has resorted to emergency measures that seem mad at first sight.
It has not only cut rates to near zero for the first time in US history, it is also conjuring $2 trillion of stimulus out of thin air. This is Quantitative Easing, or just plain 'QE' in our brave new world.
The key is the toxic mix of high debt and deflation. An economy can handle one at a time, but not both.
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Anything short of full "Prep for the Dep" (preparing for depression) is pure delusion. This is all going to reveal it's nasty ugliness in the next six to eight months...
Do it for the children. Prep for the Dep!