We’re starting to see the D-word popping up now in mainstream analysis, not just from the denizens of the peanut gallery such as myself. First of all, from Dave Rosenberg’s Aug 24th. letter:

Now we’ll tell you why this is a depression, and not just some garden-variety recession. For all the chatter about whether the recession that started in December 2007 ended sometime last year, here is what you should know about the historical record. The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the third quarter of 1933.There was another deep downturn in 1937-38, but the initial recession lasted four years and if you read the Benjamin Roth diary, you will see the euphoric response to any piece of good news — as brief as they may have been. Such is human nature and nobody can be blamed for trying to be optimistic; however, in the money management business, we have a fiduciary responsibility to be as realistic as possible about the outlook for the economy and the markets at all times.

What is important to know is this. In that initial four-year economic downturn, from 1929 to 1933, there were no fewer than six — six! — quarterly bounces in the GDP data. The average gain in these up-quarters was 8% at an annual rate! But because they proved not to be sustainable, the National Bureau of Economic Research (NBER) refused to declare that the recession officially ended, even though the stock market rallied 50% in the opening months of 1930 on the belief that the downturn was about to end. False premise. And guess what? We may well be reliving history here. If you’re keeping score, we have recorded four quarterly advances in real GDP, and the average is only 3%.

It wasn’t really until we could put together a string of very solid GDP data in 1934, 1935, and well into 1936 that the recession definitely had come to a close and at least an intermitted period of solid growth took hold. That is, until the policy mis-steps of 1937. All that second recession of the decade proved was just how fragile the post-bubble recovery really was.

The 80% rally of 2009 that whipped up so much excitement at the time and reignited all the criticism over the “bears” and how they didn’t understand the power of stimulus and how their call over the 2007-08 meltdown was just dumb luck, will be remembered in the future about as much as the 50% rally of the 1930. It’s funny how nobody seems to recall that massive dead-cat bounce off the lows; people just remember 1930 was a period of soup lines, bread lines, and unemployment lines. Maybe it’s because we ended up with a classic Bob Farrell-like third wave — the fundamental downtrend to a new low over the next two years, and the overall economic malaise with double-digit unemployment rate lasted for another decade even with massive doses of government intervention.

Then the Jerome Levy Forecasting Center weighs in:

The dominant influence on price trends in the near future and for years to come will be the deflationary influence of chronically high unemployment. The economy not only has gone through a deep recession but also has entered a contained depression, a long period of substandard economic performance, chronic financial problems, and generally high unemployment. The contained depression is likely to last about a decade; it will end in the latter half of the 2010s at the earliest and could stretch into the 2020s

In the years ahead, chronic high unemployment will weigh heavily on labor costs; chronic economic weakness will tend to keep profit margins under pressure and firms focused on cost control; and global instability and large areas of depression (contained or otherwise) will reduce upward pressures on prices of imported commodities and are likely to cause these prices to fall much of the time.

Even if imported commodity prices, most notably oil prices, rise sharply at times, they will not have a large, lasting effect on inflation as long as labor costs are decelerating or actually falling.

Labor costs are the dominant inflation influence not only because they are the single biggest component of prices, but also because labor costs are heavily affected by compensation rates, which fuel consumer spending and are therefore tied to the ability of firms to pass on inflationary price increases to consumers.

The driver is excess debt, which must be reduced to a sustainable level before the economy can resume a growth trajectory. Just look here and you will see why, the aftermath of the housing bubble. And the folks who brought you a succession of such bubbles are still in charge, serene in their beliefs and utterly and completely oblivious to the disastrous effects of their attempts to manage the economy.

And by the way, a “contained” depression? Where have we recently heard that word?