[P.O.E.]

The term "credit out of thin air" is a bit misleading. The extension of credit is, like derivatives, based on an estimate of future payback. It's not a static analysis, and it depends significantly on estimates of growth, interest rates, education, productivity, and many other intangibles. I'd agree that many existing portfolios have not been "repriced" to take into account the significant reduction in growth potential.

As far as liquidity, tax cuts are perhaps the "last best hope" of avoiding a Japan-like deflation, mostly because of the impact on the margins.

As far as economic depression, that may be a bit overblown. Certainly some industries are harder hit than others (such as IT), some grow (don't I wish I knew which ones!), many will remain flat, and some are seemingly recession-proof (funeral homes and taverns spring to mind).

Comparison to 1929 is complicated by changes in many aspects of economic activity. Agriculture is no longer labor-intensive; immigrants seem to have already filled all the lower paying jobs (the old "something to fall back on" job); you've got extensive government intervention (huge transfer payments, elaborate regulatory and statutory obstacles, - never mind the moral hazard of the many government-provided safety nets).

I agree with the idea that if it does come, it will be uglier. For one thing, the social fabric has changed - you've got changes in work ethic, familial and community interdependence, and the "trust" aspect - I can't imagine massive numbers of drifters being given odd jobs around the house in return for a meal and a night's sleep in the barn.

[Freedom4US]

For one thing, the social fabric has changed - you've got changes in work ethic, familial and community interdependence, and the "trust" aspect...

I have considered this aspect for a long time. The depression generation was a different breed of american altogether. No, it wasn't all sweetness and light - but given today's whining "gimme gimme" attitude, it won't be pretty.