'Beyond a garden-variety recession'

Friend and former Razorback roundballer John Engskov sends along this commentary from Merrill Lynch's chief economist for North America, David Rosenberg, who says we're already in a depression. Here's an excerpt:

Clearly, we have gone beyond a classic recession when the yield on the three-month Treasury bill falls to zero. This has happened only in the 1930s and in Japan in the 1990s, and is emblematic of an economy that has structural, not merely cyclical, imbalances to work through. It is clear that we are beyond a garden-variety recession. Even after nearly a year-and-a-half of unprecedented interest rate relief, multiple liquidity backstops, banking sector capital injections, loan modifications and record tax rebates, there is still no end in sight for the contraction in credit, bear market in financial stocks, decline in real economic activity, peaking unemployment, or any signs of normalcy returning to credit. This despite a moderate narrowing in spreads from Armageddon-type levels.

Policy will become more interventionist

The expansion in the government balance sheet is necessary to offset the contraction in private sector balance sheets (keeping in mind that expansions and contractions of balance sheets refer to taking or paying off debt). Accelerating growth in the money supply is also vital as an antidote to the decline in money velocity (the turnover rate of money in the real economy). Simply put, an economic depression occurs only once it becomes painfully obvious that the markets and the economy are failing to respond to repeated bouts of policy stimulus. That we have reached a point where de facto nationalization of some of the banks is even under discussion attests to the view that government policy is becoming that much more dramatic and interventionist.