I generally take a view somewhere between Zandi and Roubini. However, it is very much dependent on reflexivity (see my post: “Too big to rescue“). I would not dismiss the Bank of Canada guy out of hand. Psychology is such an important element to the credit unwind process, that it makes it VERY difficult to analyze anything more than 3-6 months out.

For example, was the present situation unmistakable 12 months ago or did the Lehman crisis change the calculus measurably? I would say that Lehman changed things. So, going forward, the same is also true — the psychology of deflation and reflexivity will have an immeasurable impact on the course of events. And remember, Japan rebounded multiple times during its down cycle. So, just because there are chronic problems, doesn’t mean we won’t rebound due to stimulus.

I plan to write a post on the psychology of deflation soon, so when I do, feel free to chime in.

Cheers.