Analysis of the Global Crisis - another take

An economist friend provided the following bleak analysis of the path he believes the world is now following:

1. Debt (excessive credit creation and lax lending standards fed by capital inflows and current account deficits)
2. Deficits (income shortfalls on debt charges arising from negative gearing originally done in expectation of capital gains)
3. Deleveraging (debtors are forced to recapitalize to avoid a debt trap as speculative mania subsides)
4. Dumping – distressed selling (to recapitalize, businesses liquidate assets, labour, and inventories and investors capitulate)
5. Deflation (as assets and labour are shed their prices plummet as reflected in stock indices, real estate prices, wages, etc)
6. Default (many businesses and investors find their assets worth less than their liabilities and they have negative equity)
7. Depression (if the government lets the situation develop to this point, the economy collapses with massive unemployment).

We are now well past 1 and into 2, 3 and 4 with 5 and 6 still in early stages. Hopefully, governments will stop this train wreck before we get to 7. This will require measures sufficient to offset the contractionary spiral under way, assuming this is possible.