Merrill Lynch economist David Rosenberg is pulling no punches these days. He says his research shows that we are in the midst of a full-on depression that cannot be thwarted by government intervention.

That sounds grim, but Rosenberg bases his thesis in part on demographic and sociological trends, observing that the 20-year expansion of credit has ended as baby boomers finally conclude that …

a) They are nearing their peak earnings years and can no longer borrow from higher income in the future.

b) They can no longer rely on appreciating assets to save them from malnourished savings and retirement accounts.

In other words, the boomers now have no choice but to sell assets, repay debt, and divert income to savings.

What this means for the politicians and central bankers we’ve entrusted to get us out of this mess is that they cannot resurrect the credit cycle and resume the old consumer-centric ways.

Changes in Conusmer Habits

Lower consumption means lower growth. In Rosenberg’s words, government efforts to parry this thrust will be blunted by secular changes in attitudes towards credit, savings, discretionary spending, and home ownership.

Makes sense, right? As the oldest boomers hit 63, with the median boomer now 52, retirement looms large. And at 45 million households, the decisions the boomers make will continue to set the direction of the U.S. economy.

Compared to earlier generations, the boomers have been much more prosperous. A recent McKinsey & Company study estimates that boomers have earned more than twice as much as the so-called silent generation during the same age span.

When combined with rising retirement accounts and home values, the boomers didn’t feel the need to ratchet up the savings rates when their income was the highest — as you can see the in the chart above, in the bottom dashed line.

Now that the twin bubbles have burst, we are already seeing signs of change as the boomers quickly amend their ways. McKinsey estimates that two-thirds of the boomer population is now unprepared for retirement and will be unable to sustain a level of spending set at 80% of pre-retirement levels.

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Working More and Consuming Less

The uncomfortable truth is that boomers will be forced to remain in the workforce longer and consume less than they planned.

We are already seeing signs of these shifts. Federal Reserve surveys of consumer credit demand has fallen to all-time lows as households struggle to service record levels of outstanding debt as wages and income fall.

According to the National Association of Credit Managers, credit applications have fallen 20% over the last year to the lowest level on record. Without consumer demand for credit, the government’s effort to encourage new loan origination by the banking sector is called into question.

Attitudes towards the real estate market have changed as well. Even as housing affordability has improved to the best levels in over three decades as mortgage rates and home prices fell, new home sales are at 17-year lows while existing home sales are at 11-year lows.

In the most recent consumer sentiment survey from the University of Michigan, a record-low 3% of respondents in the market for a house said price-appreciation was their primary reason for buying. At the bubble peak, fully 25% of respondents indicated so. As real estate investing loses its sheen, it will be much more difficult to stem the tide of defaults and foreclosures, put a floor underneath housing, and stop the decay of mortgage-backed securities.

All together, the American consumer, led by the boomer group, is tapped out and beginning a long retrenchment. With consumption at 70% of GDP, personal savings rate hovering at just 2%, homeownership rates near historic highs of 68%, the engine of global economic growth over the last 20 years has overheated, blown a gasket, and seized completely.

But all is not lost, because as traders we can capture these trends and profit from them. Check out my Trader’s Advantage advisory service to learn how.

This article was written by Jon Markman, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.