Magnus: Deleveraging and its two big deflationary forces

From FT Alphaville:

The latest offering from George “Minsky Moment” Magnus, senior adviser at UBS in London, focuses on that dismal word, “deleveraging”, which he describes as a “rare but significant influence over the course of the economic cycle”.
The deleveraging phenomenon tends to be self-reinforcing, and characterised by a protracted work-out of balance sheet repairs. Understood this way, it provides some conclusions about the deleveraging process, says Magnus:

First, it has to run its course, and time in this context is measured in years, not months or quarters.

Second, it may or may not induce a deep economic downturn, but it is most likely to be protracted, giving rise to 2-3 years (or more) of significantly below-trend growth in which unemployment will rise and capacity use decline. While it may be punctuated by quarters of positive GDP growth, “this does not mean recovery is at hand”....MORE