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Over the past 50 years, the U.S. and the rest of the developing world lived to excess aided by the widespread availability of credit. The pace accelerated in the past 10 years with looser credit standards on everything from houses and commercial real estate, to credit cards and automobile loans. That excess should never have occurred and will not recur.

Hence, what we are presently going through is what I term an “Economic Reset” and not a recession. The lifestyle and economic prosperity that we all enjoyed over the past half a century peaked with the collapse of Bear Stearns in March 2008. We are currently going through a reset, which history will show, hastened with the Bankruptcy of Lehman Brothers.

When the reset has run its course (Bernanke implied the end of 2009 but I think end of 2010), the economic growth trajectory moves to the right but on a much less steep slope, as illustrated in the graph below:

Source: It's an Economic Reset, Not a Recession