Depression Or Recession

[12DrinkMore]

The media are still talking about a "prolonged recession".

http://www.guardian.co.uk/business/2008/de...h-consumerpages

This is rubbish, the UK is now in a depression

From the font of world knowledge, wiki,

http://en.wikipedia.org/wiki/Depression_(economics)

"Considered a rare but extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation or hyperinflation are also common elements of a depression"

It seems that ALL the criteria are met, although a proposed definition is

"A proposed definition for depression is a sustained recessionary period in which the population is forced to dispose of tangible assets to fund every day living, as was seen in the US and in Germany in the 1930s."

Well, this is going to be "interesting" as a substantial number of the population has NET DEBTS, with very little to be sold (and to WHO?) that would actually

generate cash.

Here is a description of the Great Depression

http://www.english.uiuc.edu/maps/depression/about.htm

And if you look at how the world recovered... it required Hitler and a World War.

This is going to be a huge mess. Make serious plans now.

Or maybe I am just a paranoid idiot and the World's saviour Brown will fix it? Hah, his name is not Jim and he couldn't fix a cup of tea.

[zaphodbeeblebrox]

A recession has an objective definition to which some economists have subscribed: two negative quarters of GDP growth.

A depression does not have objective indicators, but rather, subjective ones. I believe when the U.S. admitted that it had already been in a recession for 1 year, that it pushed the world economy into a deep recession. Not sure if we've hit a global depression yet, but people in the States feel that way.

There is an old joke among economists that states:

A recession is when your neighbor loses his job.

A depression is when you lose your job.

The difference between the two terms is not very well understood for one simple reason: There is not a universally agreed upon definition. If you ask 100 different economists to define the terms recession and depression, you would get at least 100 different answers. I will try to summarize both terms and explain the differences between them in a way that almost all economists could agree with.

Recession: The Newspaper Definition - The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.

Recession: The BCDC Definition - The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.

Depression: Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

The Difference: So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in recent memory using this definition.

Now you should be able to determine the difference between a recession and a depression without resorting to the poor humor of the dismal scientists.

Edited December 27, 2008 by zaphodbeeblebrox

[Scott]

I am not an economist, but I think the relatively quick action of gov'ts around the world will prevent a depression. At a minimum, it should make for a much softer decline to where ever the bottom is. I think the big variable is that there are a lot more people in the world than there were in the 1930's and there is less room for self-sufficiency. Any major disruptions in food (and this could be climatically caused), could be disasterous.

[mommysboy]

I am not an economist, but I think the relatively quick action of gov'ts around the world will prevent a depression. At a minimum, it should make for a much softer decline to where ever the bottom is. I think the big variable is that there are a lot more people in the world than there were in the 1930's and there is less room for self-sufficiency. Any major disruptions in food (and this could be climatically caused), could be disasterous.

I appreciate your point, but think it's wrong. In the UK, people said there would not be a house price slump because the modern economy was different and there were not enough houses. But in the end simple fundamentals, which had been absurdly distorted, have decided the matter.

In my view the same applies to the world economy which has been insanely distorted. A depression for sure.

[britmaveric]

Nah recession, def no depression.

[mommysboy]

Nah recession, def no depression.

Why do you say that? just being optimistic?

[Mighty Mouse]

I am not an economist, but I think the relatively quick action of gov'ts around the world will prevent a depression. At a minimum, it should make for a much softer decline to where ever the bottom is.

What is better, a short sharp recession or a prolonged economic downturn costing trillions of dollars with the likelihood of tipping world economy into depression?

Had governments stayed out of trying to "save" the world with taxpayers money, the year old recession would now be over, albeit with a lot of people losing their employment, many going bankrupt and many more losing their homes.

With the governments rescue packages the whole 'natural' financial cleansing process is being stalled. We can now expect a prolonged and painful recovery. All those banking and lending institutes, whose dodgy lending practices caused this mess, have had billions of dollars pumped into their coffers. In other words, they are being rewarded for their stupidity.

The same thing applies to the auto industry. Executives being saved by taxpayers for making insane decisions re producing petrol guzzling cars.

It will now be interesting to see how the Americans "save" their greenback from extinction.

[Jingthing]

Had governments stayed out of trying to "save" the world with taxpayers money, the year old recession would now be over, albeit with a lot of people losing their employment, many going bankrupt and many more losing their homes.

History will tell, but I think you are SO wrong! Without these interventions, we would already be in the new great depression.

Emergency measures were and are critical. I fear they aren't big enough or fast enough.

[Pakboong]

IMO, a depression is a condition of panic among the population which causes an already existing recession to become unmanageable. Runs on banks, hedge funds, stocks, bonds, IRAs, etc...

[MJP]

A numbers depression but not nearly as hard physically as the 1930's.

Welfare state, over production of stuff etc.

[track61]

I always heard a recession is when your neighbor is out of work, a depression is when you are out of work.

[Mighty Mouse]

Emergency measures were and are critical. I fear they aren't big enough or fast enough.

The measures certainly are "critical"....critical to politicians shoring up votes.

Take a look at the amazing steps the US Govt has taken so far. (and I'm not including measures from other Western governments) Each new step is greater and more expensive than their previous step. Keep in mind that every step places a huge risk for unintended consequences. The financial system is such a finely tuned mechanism, if you pull on this lever something happens at the other end of the mechanism. Some of these consequences are now, or about to be activated as a result of governments pulling too hard on certain levers.

In the meantime the printing presses are running white hot churning out mountains of greenbacks. Will hyper inflation be another problem for governments?

Throwing money at a financial problem won't make the problem go away. How many new government policies have been introduced to ensure that this mess doesn't happen again?

None that I know of.

Much of this financial problem (if not all of it) came about by government failure to properly monitor and censure the forming of Greenspan's bubbles. (Greenspan is not solely responsible but he sure did create some bubbles.)

In the 'rescue package' the government 'saved' AIG. Didn't the AIG demise come from their own misguided financial decisions? Why rescue them and allow Lehman Brothers to die?

The banks were involved in the sub-prime crises so why only bail them out and not bail out all lending institutes?

Worse, government bailouts simply encourage similar foolishness in the future. Do you really believe that the bailed out banking industry, insurance industry, auto industry...the list goes on...will change their ways once the financial markets return to normal? Of course they won't. These industries got themselves into trouble hurting millions of Americans in the process and it's those same Americans who are now bailing them out.

Had governments not tried to rescue failed industries, they would still be holding trillions of taxpayers dollars and the recession would be cleansing the system. (as recessions have done in the past.) Governments only needed to stimulate taxpayer spending by reducing taxes, providing incentives to spend and restoring confidence.

The failed industries would soon enough be replaced by better and more profitable enterprises with wiser CEO's running them.

Now, we face so much uncertainty. The US government have reduced interest rates to zero. They can't go much lower than zero but the US economy is still on the skids.

The US trade deficit is in very bad shape, their debt levels are at record highs and if China decides to dump US treasuries the bottom will fall out of the greenback, possibly resulting in it losing its world reserve currency status.

The government has rushed in with its knee jerk reaction style 'rescue package'. Eventually, this mess will sort itself out but not as a result of any rescue package.

[spiderman2]

Yes the are slowly spoon feeding us whats happening.

First there was going to be a slowdown in growth, this then turned no growth, then they tell us we're going to be in we've had a decline of 0.2% for the last 3 months, then a month later the office of nation stats tell us this was actually a 0.5% decline for this period, now theyre predicting a decline in the first half of 2008 but growth in the second half..............then the banking crisis started out as a minor inconvience and was slowly built up to the stage where Gordon and his parasites were lying to us that the end of civilisation as we know it would take place unless we went to work for the next 20 years to bail themout.

My basic understanding of economics is there is only so much money in circulation and over the last 15 years the richest few % have acquired a greater percentage of this, and the rich save and dont spend it...... so the rest of us have less money to share amongst us....... Maybe if this money was shared out a little better we'd have money to buy overpriced houses, crap goods we dont need from Asia and cars that people will only buy when theyve more money then sense.................aswell as sending billions of $$$ on a daily basis to oil producing nations that hate us.

[teatree]

This depression will probably be worse, in countries such as the US and the UK at least, than the 1930's because...

Debt. The amount of debt around is insane. How many trillions of personal debt alone is there? People didn't have credit cards in the 30's, but its quite common for people to have 5 now.

Manufacturing. Back in the 30's countries like the UK and US actually made things that represented real value. Now much of those jobs have been shipped overseas, leaving behind the puffed up financial sector which is now imploding and taking the rest of the economy with it.

Self sufficiency. In the 30's many people were at least partly self sufficient and produce was locally grown. How many people in modern western society grow ANYTHING? And when the depression really bites, how easy is going to be to get our vegetables flown in from Chile or whatever far flung country we currently rely on for much of our produce? Add to this the lack of credit available for farmers to grow crops, for haulage companies to transport food and for shops to sell it, then I think we could see some serious food shortages in parts of the West soon.

[Hairy]

I am not an economist, but I think the relatively quick action of gov'ts around the world will prevent a depression. At a minimum, it should make for a much softer decline to where ever the bottom is. I think the big variable is that there are a lot more people in the world than there were in the 1930's and there is less room for self-sufficiency. Any major disruptions in food (and this could be climatically caused), could be disasterous.

Considering that it was the "relatively quick action of gov'ts around the world" (sic) that CAUSED and PROLONGED the 1920s-1930s Great Depression, I think you're pinning your hopes on the wrong horse.

Had governments stayed out of trying to "save" the world with taxpayers money, the year old recession would now be over, albeit with a lot of people losing their employment, many going bankrupt and many more losing their homes.

History will tell, but I think you are SO wrong! Without these interventions, we would already be in the new great depression.

Emergency measures were and are critical. I fear they aren't big enough or fast enough.

Sorry, Jing, but I must disagree with you on this. The interventions, at least the ones by the U.S. Federal Reserve and Treasury, did absolutely nothing worthwhile, have caused real harm already, and have dramatically increased the national debt already which will result in longterm burdens making a recovery all the more difficult.

Bernanke's August 2007 interest rate cuts, done to "save" the stock market in the wake of the Countrywide Mortgage collapse (in which he and Paulson also brokered CFC's sale to BAC by guaranteeing US$27,000,000,000 of CFC's debts), provoked the sharp fall in the value of the USD against other currencies, thereby causing the oil (and also gold, not really relevant here) price spike, which did enormous damage to the real economy in the U.S.

The other interventions likewise targeted non-problems and were just attempts to paper over the real monster in the cellar: the collapse in home prices, resulting in banks' mortgage-backed securities becoming worthless and/or impossible to value (due to the way they sliced and diced mortgages). The banks are insolvent, and Bernanke and Paulson have just been playing more games to buy time for the banks to sort things out -- and the banks, in turn, have continued playing "hide the sausage" and "musical deck chairs on the Titanic", with the insolvent banks that received bailout money using it to buy . . . other insolvent banks. What a great idea.

Now cometh the Obamassiah, who promises to build roads to nowhere and pour even more money down the public toilet of "infrastructure". The December 13th-19th "Economist" had a lovely article pointing out that most of the projects that are "ready to go" as soon as Obama gets into office are projects that were studied and determined to be unnecessary and pointless wastes of money. No lasting value, just a way to buy welfare votes.

In other words, Obama is just going to <deleted> things up even worse. The money eventually has to get paid back, you know. The US$5,000,000,000,000 and rising from all the bailouts, guarantees, interventions; the US$10,000,000,000,000 of existing national debt; whatever Obama is going to pour down the toilet, which has been guesstimated at another US$2,000,000,000,000 just to start with. . . .

We would have been far better off without the interventions. The insolvent banks would have collapsed, the messes would have been sorted out, a lot of Wall Street types would have shot themselves, and the rest of us could have gotten on with our lives. Instead, they're going to take us down with them. Every new program, bailout, and "temporary" measure just makes things worse.

[MJP]

I am not an economist, but I think the relatively quick action of gov'ts around the world will prevent a depression. At a minimum, it should make for a much softer decline to where ever the bottom is. I think the big variable is that there are a lot more people in the world than there were in the 1930's and there is less room for self-sufficiency. Any major disruptions in food (and this could be climatically caused), could be disasterous.

Considering that it was the "relatively quick action of gov'ts around the world" (sic) that CAUSED and PROLONGED the 1920s-1930s Great Depression, I think you're pinning your hopes on the wrong horse.

Had governments stayed out of trying to "save" the world with taxpayers money, the year old recession would now be over, albeit with a lot of people losing their employment, many going bankrupt and many more losing their homes.

History will tell, but I think you are SO wrong! Without these interventions, we would already be in the new great depression.

Emergency measures were and are critical. I fear they aren't big enough or fast enough.

Sorry, Jing, but I must disagree with you on this. The interventions, at least the ones by the U.S. Federal Reserve and Treasury, did absolutely nothing worthwhile, have caused real harm already, and have dramatically increased the national debt already which will result in longterm burdens making a recovery all the more difficult.

Bernanke's August 2007 interest rate cuts, done to "save" the stock market in the wake of the Countrywide Mortgage collapse (in which he and Paulson also brokered CFC's sale to BAC by guaranteeing US$27,000,000,000 of CFC's debts), provoked the sharp fall in the value of the USD against other currencies, thereby causing the oil (and also gold, not really relevant here) price spike, which did enormous damage to the real economy in the U.S.

The other interventions likewise targeted non-problems and were just attempts to paper over the real monster in the cellar: the collapse in home prices, resulting in banks' mortgage-backed securities becoming worthless and/or impossible to value (due to the way they sliced and diced mortgages). The banks are insolvent, and Bernanke and Paulson have just been playing more games to buy time for the banks to sort things out -- and the banks, in turn, have continued playing "hide the sausage" and "musical deck chairs on the Titanic", with the insolvent banks that received bailout money using it to buy . . . other insolvent banks. What a great idea.

Now cometh the Obamassiah, who promises to build roads to nowhere and pour even more money down the public toilet of "infrastructure". The December 13th-19th "Economist" had a lovely article pointing out that most of the projects that are "ready to go" as soon as Obama gets into office are projects that were studied and determined to be unnecessary and pointless wastes of money. No lasting value, just a way to buy welfare votes.

In other words, Obama is just going to <deleted> things up even worse. The money eventually has to get paid back, you know. The US$5,000,000,000,000 and rising from all the bailouts, guarantees, interventions; the US$10,000,000,000,000 of existing national debt; whatever Obama is going to pour down the toilet, which has been guesstimated at another US$2,000,000,000,000 just to start with. . . .

We would have been far better off without the interventions. The insolvent banks would have collapsed, the messes would have been sorted out, a lot of Wall Street types would have shot themselves, and the rest of us could have gotten on with our lives. Instead, they're going to take us down with them. Every new program, bailout, and "temporary" measure just makes things worse.

100% agree. They have to let the unwind happen. The longer they drag it out the worse it will be. Don't give money to failing banks and others. Get it into the real economy of replacing infrastructure. Funnel it through the civils firms, energy and agriculture firms.

Create real employment doing real things which will have a lasting benefit.

[Jingthing]

This was more than an unwind. What happened gave a lot of very smart people some pause in their total faith in laissez faire capitalism as a viable system. I think people opposing government actions are just hard core right wing ideologues that don't think government can EVER do anything for good. Obama has surrounded himself with some of the top economics thinkers on the planet and they are all saying SPEND BABY SPEND! if he fails to listen to them he does indeed deserve to fail. Their advice may not work, but it is the best advice available. I wish hard core ideologues would take a long vacation. We can't afford their purity.

Edited December 28, 2008 by Jingthing

[MJP]

This was more than an unwind. What happened gave a lot of very smart people some pause in their total faith in laissez faire capitalism as a viable system. I think people opposing government actions are just hard core right wing ideologues that don't think government can EVER do anything for good. Obama has surrounded himself with some of the top economics thinkers on the planet and they are all saying SPEND BABY SPEND! if he fails to listen to them he does indeed deserve to fail. Their advice may not work, but it is the best advice available. I wish hard core ideologues would take a long vacation. We can't afford their purity.

It's what they're spending it on which I take real offence.

[Losangels]

Very good posts from everyone.

Agree with most of them.

OMO reason they don't use the "D" word is cause they're afraid on the run on banks.

Perhaps safer by hiding money under the mattress or buy gold bullions

[midas]

This was more than an unwind. What happened gave a lot of very smart people some pause in their total faith in laissez faire capitalism as a viable system. I think people opposing government actions are just hard core right wing ideologues that don't think government can EVER do anything for good. Obama has surrounded himself with some of the top economics thinkers on the planet and they are all saying SPEND BABY SPEND! if he fails to listen to them he does indeed deserve to fail. Their advice may not work, but it is the best advice available. I wish hard core ideologues would take a long vacation. We can't afford their purity.

And if it is ok to spend money raised from the US taxpayers, for how long do you think it

is acceptable that no one can ask any questions ( including Congress ) as to how the

money is being spent ?

[Jingthing]

This was more than an unwind. What happened gave a lot of very smart people some pause in their total faith in laissez faire capitalism as a viable system. I think people opposing government actions are just hard core right wing ideologues that don't think government can EVER do anything for good. Obama has surrounded himself with some of the top economics thinkers on the planet and they are all saying SPEND BABY SPEND! if he fails to listen to them he does indeed deserve to fail. Their advice may not work, but it is the best advice available. I wish hard core ideologues would take a long vacation. We can't afford their purity.

And if it is ok to spend money raised from the US taxpayers, for how long do you think it

is acceptable that no one can ask any questions ( including Congress ) as to how the

money is being spent ?

Why ask now? Bush was the biggest deficit spender in US history. Now is not the time to make balancing the budget a top priority. Of course, how exactly to spend the stimulus money is debatable, that is a given. Duh.

[neverdie]

Very good posts from everyone.

Agree with most of them.

OMO reason they don't use the "D" word is cause they're afraid on the run on banks.

Perhaps safer by hiding money under the mattress or buy gold bullions

There's quite a few countries now have already acted by offering Govt Guarantees & various types of insurance, things would have to decline even more rapidly to get the runs?

I think we are in for very interesting times in 2009....not to mention a wild ride with foreign exchange

[Jingthing]

Without the government actions in Europe, the US, and China there already would have been a global run on the banks, and we already would be in a depression even worse than the 1930's. This has been prevented so far. There is cause for optimism that it can be completely avoided. Otherwise, Katie (or Lek or Pu) bar the door!

Edited December 28, 2008 by Jingthing

[lannarebirth]

Had governments stayed out of trying to "save" the world with taxpayers money, the year old recession would now be over, albeit with a lot of people losing their employment, many going bankrupt and many more losing their homes.

History will tell, but I think you are SO wrong! Without these interventions, we would already be in the new great depression.

Emergency measures were and are critical. I fear they aren't big enough or fast enough.

So,how many dollars are you and your offspring kicking in Jingthing?

[Jingthing]

Had governments stayed out of trying to "save" the world with taxpayers money, the year old recession would now be over, albeit with a lot of people losing their employment, many going bankrupt and many more losing their homes.

History will tell, but I think you are SO wrong! Without these interventions, we would already be in the new great depression.

Emergency measures were and are critical. I fear they aren't big enough or fast enough.

So,how many dollars are you and your offspring kicking in Jingthing?

Shall I count the lost value of my assets? Was that some kind of veiled personal attack?

Edited December 28, 2008 by Jingthing

[lannarebirth]

This was more than an unwind. What happened gave a lot of very smart people some pause in their total faith in laissez faire capitalism as a viable system. I think people opposing government actions are just hard core right wing ideologues that don't think government can EVER do anything for good. Obama has surrounded himself with some of the top economics thinkers on the planet and they are all saying SPEND BABY SPEND! if he fails to listen to them he does indeed deserve to fail. Their advice may not work, but it is the best advice available. I wish hard core ideologues would take a long vacation. We can't afford their purity.

I know you imagine yourself as a sophisticate(the definition might surprise you), but if you follow politics as you proclaim you would know that Obama has "surrounded" himself with the criminal Rubin's proteges. Change, my ass. Whose money are you suggesting we spend BTW?

[Jingthing]

The better question is how much will it cost each of us if the worst case scenarios happen, which arguably have been avoided, at least so far. I am not going to argue US politics with you Lanna, but nice try.

[lannarebirth]

Had governments stayed out of trying to "save" the world with taxpayers money, the year old recession would now be over, albeit with a lot of people losing their employment, many going bankrupt and many more losing their homes.

History will tell, but I think you are SO wrong! Without these interventions, we would already be in the new great depression.

Emergency measures were and are critical. I fear they aren't big enough or fast enough.

So,how many dollars are you and your offspring kicking in Jingthing?

Shall I count the lost value of my assets? Was that some kind of veiled personal attack?

No, that wasn't a personal attack at all, and no, the loss in the value of your assets doesn't count as those valuations are arbitrary and not fixed. The debt however is fixed.

[flying]

Very good posts from everyone.

Agree with most of them.

OMO reason they don't use the "D" word is cause they're afraid on the run on banks.

Perhaps safer by hiding money under the mattress or buy gold bullions

Someone will come along & call me a goldbug or something but.......... I think anyone who has eyes & has not as yet done something for themselves is crazy.

And I am not talking about gold & $$ only.

[Mighty Mouse]

The better question is how much will it cost each of us if the worst case scenarios happen, which arguably have been avoided, at least so far. I am not going to argue US politics with you Lanna, but nice try.

The worst case scenario is a deep depression. Banks are locked up tight, jobs are lost, spare cash has run out, very little food available, crime is rife............you get the picture.

During the last depression, wise Jews made a lot of money. They had prepared for the worst, stored all their money in suitcases under the bed and when home owners were most vulnerable the Jews made ridiculous offers to buy their houses. Many home owners were forced to sell their homes for a fraction of what they were actually worth.

When the good times returned the Jews doubled, tripled, quadrupled their housing investments.

If you believe that those times are about to return, prepare for it. You may be able to prosper from it.

The governments cash bonanza intervention thus far, only prolongs the inevitable. The quickest way for the government to end a depression (should we go into one) is to start a world war.