Recession or depression? Too early to tell

[Gunny]

By John W. Schoen
Senior producer
msnbc.com
updated 1:14 p.m. CT, Thurs., Jan. 22, 2009

By every measure — lost jobs, plunging stock prices, scarce credit and a profound loss of confidence in the banking system — the economy is in awful shape.

The nation's 11th recession of the postwar era began in December 2007 and easily could become the longest since the Great Depression, although most forecasters expect a weak recovery to begin in the second half of this year.

But what are the odds that we’re in the early stages of what will eventually become a depression rather than just a recession?

The answer starts with definitions. While the term "depression" is reserved for the most extreme economic collapses, there is no technical definition, say economists.

“The difference between a recession and depression is primarily a matter of degree,” said Victor Zarnowitz, a University of Chicago economist and a member of the business cycle dating committee at the National Bureau of Economic Research. “A depression is much more severe and usually longer than a recession.”

Is this another Great Depression? - Eye on the Economy- msnbc.com

 

[roomy]

We in the UK get to find out later this morning whether or not we are in a recession

 

[FistyTheBadger]

However big it is, it is just a correction. We were acting irresponsibly before, and these are the results. There is not failure of economy or capitalism in this downturn. There is a revealing of personal failures of discipline and manipulation of supply which lead to overdemand.

 

[roomy]

However big it is, it is just a correction. We were acting irresponsibly before, and these are the results. There is not failure of economy or capitalism in this downturn. There is a revealing of personal failures of discipline and manipulation of supply which lead to overdemand.

Riddle me this... fucking idiot.

 

[Dorkazoid_Jones]

During the Depression of the 1930s, the government made several mistakes. One was raising tariffs and trade barriers which slowed down international trade. Secondly, Roosevelt did a huge government spending program beginning in probably 1933 which didn't lead to any improvement in the economy. Unfortunately, Obama wants to do a huge government spending program and probably raise tariffs or at least have tax breaks for things like American cars. If Obama gets what he wants, we will probably go into a global depression. If he has SIGNIFICANT tax cuts, not just token tax cuts, and hikes in government maybe we can avoid a depression. I fear for the worst. To bad Reagan's not starting in office now. He probably would do something like have a tax holiday for six months. That would work...

 

[roomy]

Dorky

I understood every word but disagree with them.

 

[wimpy77]

During the Depression of the 1930s, the government made several mistakes. One was raising tariffs and trade barriers which slowed down international trade. Secondly, Roosevelt did a huge government spending program beginning in probably 1933 which didn't lead to any improvement in the economy. Unfortunately, Obama wants to do a huge government spending program and probably raise tariffs or at least have tax breaks for things like American cars. If Obama gets what he wants, we will probably go into a global depression. If he has SIGNIFICANT tax cuts, not just token tax cuts, and hikes in government maybe we can avoid a depression. I fear for the worst. To bad Reagan's not starting in office now. He probably would do something like have a tax holiday for six months. That would work...

sorry my friend tax holiday wouldn't work. and no obama is not going to raise tariffs that would be stupid.

 

[Modbert]

We are currently in what is the financial definition of a Depression. Plus, the same causes of the Great Depression have occurred/are occurring now.

And what causes are those?

1.) Massive Bank Failures

2.) Stock Market Crash

3.) Imbalance of Wealth between Rich and Poor (CEOs make over 300-400 times the average worker now.)

4.) Contraction/Restriction of the credit supply in the economy. Companies like GM and Ford have the funds to continue to pay any debts for a short/good period of time. However, most of it is in credit and unable to be transferred to Cash. Especially in bad times like this.

5.) A reduction in output, in trade, and unemployment on the rise. (Rhode Island just hit 10% offically while unoffically it's more around 12%+ AT LEAST).

6.) Pessimism and Loss of Confidence (Obama seems to have changed this for the majority of the country. However, things do not bode well if he cannot keep the mood good.) FDR was talking about the economy when he said The only thing we have to fear is fear itself.

7.) Hoarding of Money (More so then usual).

8.) Numerous Bankruptcies (Circuit City anyone?)

9.) Highly volatile relative currency value fluctuations (Look at how much the Stock Market moved 5 if not 10 years ago compared to today)

10.) Price Deflation (Barrel of Oil I believe was in the $30 range today. If not for the hoarding of money for profit by oil companies and others the price of gas should be at about $1.00 a gallon. However, we have now entered the era by many which is considered the "Last Hurrah" for Oil Companies with the future looking bright in alternative energy. Solar, Wind, Compressed Air Cars, etc are the future. Oil Companies are now trying to make their last buck because once one alternative energy becomes fully relevant, their stock prices and quarterly profits will drop faster then a brick off the empire state building.

And of course, when talking about Price Deflation we cannot forget our "wonderful" housing market. Nuff said there.

And finally I'll add one more we currently have/will have:

11.) The population being forced to rid itself of tangible assets to fund every day living. (Medical bills anyone? Among many other things increasing in price).

I personally fail to see why a Depression can only be a Depression if it's more then 3 years in time. The affects of what happen in the time period are more important then how long in certain aspects.

And speaking of the UK:

UK in Recession after Fastest GDP Fall Since 1980 - Britain * Europe * News * Story - CNBC.com

Britain went into recession at the end of last year for the first time since 1991, with the economy contracting at its fastest pace in nearly 30 years.

The Office for National Statistics said the economy shrank by 1.5 percent in the fourth quarter of last year, the biggest drop since the deep recession of 1980.

The economy contracted by 1.8 percent compared with a year ago.

The pound hit a fresh 23-year low against the dollar and the FTSE-100 share index fell below the psychologically-important 4,000 mark for the first time in more than a month as investors realized the UK economy was in for a deep and prolonged downturn.

Japan:

Japan in recession | Reuters

WASHINGTON (Reuters) - Japan became the latest major economy to fall into recession and Citigroup said on Monday it would cut 52,000 jobs, one of history's largest layoffs, stoking fears the global economic slump is worsening.

After a weekend meeting of the Group of 20 advanced and emerging economies failed to come up with specific new measures to ease the world's financial strains, the IMF said it needed at least $100 billion in extra funding to fight the crisis.

The United States fell into a recession in April and the downturn is expected to last 14 months, with unemployment reaching 7.7 percent this year, according to a survey of private forecasters by the Federal Reserve Bank of Philadelphia.

That would be the longest contraction since the 16-month recession that ended in 1982, according to the National Bureau of Economic Research. The organization has not declared a recession this year, in part because output expanded in the second quarter, fueled by economic stimulus plan payments.

Unemployment:

Current Unemployment Rate & Statistics 2009 - Job Layoffs, Loss | Mint.com Blog

The overall unemployment rate currently stands at 7.2 percent, a 15-year high according to Bureau of Labor Statistics. Each day since the current recession began, in December 2007, the news has been full of reports of job layoffs. Just today the government released a report indicating that the number of Americans filing for unemployment benefits is at its highest level in a quarter of a century, as more workers seek government assistance.

As the link states, real unemployment rate is currently 13.5%.

If calculated as 80 years ago: 17.5%.

The unemployment rate did not reach 25% until four years after the market crashed. In 1930, year after the crisis, the unemployment rate was 8.9%. That's about half of what it is today.

In other words, what does this all mean?

We all need to start doing this more heavily:

 

[Diuretic]

Keynes saved the world's economy during the Great Depression. Our collective knowledge of how to get out of depression has been informed by analysis of Keynes General Theory and its application back in the 1930s and in periods of recession since.

I was reading where Ben Bernanke enhanced his academic career with a scholarly analysis of the causes of the Great Depression. I hope he studied the solutions as well.

Despite FDR's errors - which apparently extended the effects of the Depression - Keynes was proven right in his theory. He had a big hand in Bretton Woods. We can't ignore him. Here's hoping everyone keeps their nerve and gets us out of this mess.

 

[roomy]

Not bad.C+

 

[editec]

Depending on your CLASS, you might have been in a DEPRESSION for the last 20 years, folks.

The lowest quintile has been in a depression for decades..the second lowest for at least a decade and the middle class in something approaching depression for nearly as long.

Only the two two quintiles have NOT been losing purchasing power for a great long while, and it's looking to me like the forth quintil is probably going into a depression right now.

The rich are about where you'd expect them to be...richer than ever.

 

[Neubarth]

We are rapidly headed into the Greatest Depression in World history according to the economists that I have talked to. Two from Stanford and one from Cal Berkeley.

This has to be the most frightening period in World history. We see a collapse roaring at us and we can do nothing about it.

 

[Kevin_Kennedy]

We are rapidly headed into the Greatest Depression in World history according to the economists that I have talked to. Two from Stanford and one from Cal Berkeley.

This has to be the most frightening period in World history. We see a collapse roaring at us and we can do nothing about it.

We could let the market correct itself, but that would mean getting the Fed and Congress to stop making a mess of the situation.

 

[FistyTheBadger]

We are rapidly headed into the Greatest Depression in World history according to the economists that I have talked to. Two from Stanford and one from Cal Berkeley.

This has to be the most frightening period in World history. We see a collapse roaring at us and we can do nothing about it.

We could let the market correct itself, but that would mean getting the Fed and Congress to stop making a mess of the situation.

Please, give me hope of this Obama!

 

[Neubarth]

Obama? Obama? Ha! Don't make me laugh.

What short term stimulus plan is he proposing? I have yet to see anything that he is proposing that would lead me to believe that he understands how bad the spending fall off is. This is serious sheeeeet.

We have got to save the smaller businesses out there, and Obama seems to have no plan for that.

Globally the banks are all failing. There is no collective action to deal with that, but that needs to be dealt with. Yet Obama is sitting on his thumbs.

 

[editec]

Obama seems to be attemtpting to wag the dog by its tail.

The people who need the money don't have it and the banks won't lend it to them,

The people who lost the money, the freaking banking idiots, he's helping.

Go figure..

 

[Neubarth]

However big it is, it is just a correction. We were acting irresponsibly before, and these are the results. There is not failure of economy or capitalism in this downturn. There is a revealing of personal failures of discipline and manipulation of supply which lead to overdemand.

Riddle me this... fucking idiot.

I'm with you on that one, roomy. The problem is not "overdemand"

Instead it is Lack of DEMAND. People are not buying.

 

[Neubarth]

Obama seems to be attemtpting to wag the dog by its tail.

The people who need the money don't have it and the banks won't lend it to them,

The people who lost the money, the freaking banking idiots, he's helping.

Go figure..

Instead of herbert Hoover and Hoovervilles, we elected Obama, and the squatter cities that will ensue will be called Obama Dreams for a change.

 

[FistyTheBadger]

Obama? Obama? Ha! Don't make me laugh.

What short term stimulus plan is he proposing? I have yet to see anything that he is proposing that would lead me to believe that he understands how bad the spending fall off is. This is serious sheeeeet.

We have got to save the smaller businesses out there, and Obama seems to have no plan for that.

Globally the banks are all failing. There is no collective action to deal with that, but that needs to be dealt with. Yet Obama is sitting on his thumbs.

Government doesn't have to save anybody.

 

[FistyTheBadger]

However big it is, it is just a correction. We were acting irresponsibly before, and these are the results. There is not failure of economy or capitalism in this downturn. There is a revealing of personal failures of discipline and manipulation of supply which lead to overdemand.

Riddle me this... fucking idiot.

I'm with you on that one, roomy. The problem is not "overdemand"

Instead it is Lack of DEMAND. People are not buying.

The problem is not happening now. Now (assuming things in the market just correct themselves) is how it should be. The problem happened before September when demand exceeded the supply available, and the overt demand did not match the actual need or desire of the people involved. Bubbles are always the problems, not their bursting.