After an investment boom there's too much capital equipment to use
profitably, and it has to get worn out before new investment can
start again.
And in this particular boom, a tremendous amount of bond and loan debt was incurred to finance, among other things, that capital equipment. We talk of the stock market losing $7trln in value since its high in 3/00, but that market value, or market capitalization, is a mere computation - the sum of each corporation's (highest stock price - current stock price) * shares outstanding. A bigger worry is that companies used their inflated stock valuations as paper collateral to raise debt in the capital markets. The real capital overhang is the $5.2trln of loans and $2.3trl of investment grade bonds issued to US corporations since 1998. $374bln (the total asset value of US bankruptcies filed since 1/01) of that is already being fought for by creditors in bankruptcy court. The rest remains a massive economic liability.
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