Rosenberg on the Economic Crisis, Part 2

Editor's note: Following is the second installment in a three-part interview. Here is Part 1, and here is Part 3.

NEW YORK (TheStreet) -- Economic and market bears don't get more notable than David Rosenberg, the chief economist and strategist at Canadian investment firm Gluskin Sheff.

Rosenberg generated headlines this August when he advised clients that the "current economic malaise" is a "depression," and not "some garden-variety recession."

The former Merrill Lynch chief economist also was ahead of the pack when he raised alarms about the housing bubble in 2005 and warned of a coming recession in 2007.

In the following installment of my interview with him, he discusses why inflation is still years away, what the government should do to get the economy rolling again and whom the president should pick as jobs czar.

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Eric Jackson: When do we see real inflation in North America?

Rosenberg: A decade from now for sustained inflation. We know right now that corn, energy and cotton are experiencing price inflation, but I don't think it will be sustained. We're still in a deflationary environment. There's still far too much excess capacity in the U.S. -- for plant, commercial real estate or labor for that matter.

I think we're in year two of a six- to seven-year transition to the next bull market in the U.S. So it's going to take some time to create some meaningful inflation pressure.

Where are we in the debt deleveraging cycle?

There are two ways to delever: Pay down your debt, or stiff your lender. The fact that so many people have stiffed their lenders doesn't change the fact that we're still in this deflationary world where we're extinguishing excess debt. We've probably delevered 1 trillion dollars in household debt to assets, but we've got another 5 to 6 trillion dollars to go.

So, in terms of where are we with the whole deleveraging process, we're not at the national anthem, but, at best, we're just past the 3rd inning. We've still got a ways to go, and it's tough.

People say to me, "Where are the soup lines and bread lines if things are so bad?" I tell them, "They're in the mail, in the form of 99-week unemployment insurance checks." The U.S. government has managed to turn unemployment insurance into a quasi-welfare scheme.

When you take a look at organic real personal income, which is personal income in constant dollar terms excluding government transfers, it's still down almost 6% from where it was in 2007, so you tell me what kind of recovery we're in? That creates such a big problem. Consumers have upped their savings rate, but it's not enough to compensate.