Consumption

“>>"Isn't that what a depression is...a dramatic contraction of money and credit?"

Recessions today can be caused by numerous external or internal drivers like wars, bad trade policies, bad tax policies, population demographics, etc. but if we're talking about the role of money in recessions, then recessions under a credit money system are reactions to credit gluts offered to progressively higher risk customers. This causes price and wage distortions that warp the equation of supply and demand, as well as pooling of excess liquidity into speculative bubbles that further distort prices ( see housing bubble ).

Consumption cannot be increased exponentially forever and forever no matter how much fiat you pump into the system. People have a limited stomach for goods and services and when they're full, they're full. At a certain point, true demand is satisfied and you end up with a supply overhang. Inventories back up, production slows, demand for new credit stalls, bad debt heads for default, and the system attempts to recede to equilibrium. These are the boom and bust cycles that are so predictable when the elastic money supply is stretched beyond its safe limits.

Credit contraction can be a cause of a recession but it can also be a signal that the preceding credit expansion has overheated the economy and rest is required.

Overconsumption and underconsumption are less likely when prices are allowed to adjust without manipulation, as they are in a sound money system.