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Home » Online Forex Trading Blog » Are We In a Recession or a Depression?

Are We In a Recession or a Depression?

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Where are we now? Are we in the middle of a recession, on the way out of a recession, entering into a depression, or are we already there? What are the signs of a depression? How do we know, for sure, where we are?

We can figure it out. There are signs and symptoms to watch for, and definitions to use in making judgments. Let’s take on the worst possible scenario. We can examine the defining points of a depression, compare our situation to those points, and find out where we are.

First there’s the commonly quoted economics joke: “A recession is when my neighbor loses his job; a depression is when I lose mine; and a panic is when my wife loses hers”. Let’s hope we don’t get to the panic point. But where are we in regards to the first two evaluation points?

Here it is in black and white, this from the Bureaus of Labor Statistics, a dot-gov site that doesn’t waste your tax dollars on flashy graphics. The columns indicate, from left to right, the third then forth quarters of last year, December of 2008, then January ’09, then February of this year. The last column indicates the Jan-Feb change.

blsunemp

For comparison, consider unemployment in what is called the Great Depression. Here’s a grim graph showing the peak in unemployment back then.

gdepunemp

Do you see that spike to twenty-five percent? We aren’t nearly there yet. You can see that while many neighbors have lost their jobs, most of us have not. So that’s score one for the recession theory. Recession is ahead 1-0.

How bad was it then, and how bad is it now? Judging by the what I’m experiencing myself and hearing on the news, we haven’t hit the level of hard times it takes to make a depression. The older members of my family told me some about the Great Depression. They didn’t think it was that great. My Dad was out-of-work, as they called it, perennially so, in those time. He  worked when he could, which wasn’t often, and for what he could get, which wasn’t much. He ran a trap line and sold small animal hides. He seined the rivers for bait and set trot-lines for catfish, both to feed the family and to sell. Well, he didn’t feed those catfish to me, you understand. I came along after the War. But you get the idea. Times were hard. They had soup lines, or bread lines, full of hungry and hopeless people. It’s true we have food banks and shelters now, but nothing like this.

Depression Era Breadline

The people you see picking up food at the food banks are mostly driving to pick up their groceries. Not to make light of their plight, but after you’ve been out of work and money long enough, as they were back in that depression, you won’t be driving. Your vehicle, if you ever had one, will long ago have been re-acquired by the financing institution, or sold to buy groceries if you owned it. And as for gas, please, at these prices? So for severity, as bad as it is now, we have nothing like the symptoms you see in those old breadline pictures.  Looks like the recession theory is leading 2-0.

How’s production? That’s another way you can tell a recession from a depression. How is that GDP, anyway? It’s not so terrible, thank you for asking. Take a look at this graph from the bad old days of the Great Depression.

GNP During Great Depression

Look at that dip in the ‘thirties. There were good reasons for it, that don’t come into this discussion, as we are busy comparing apples to apples, leaving the oranges out of it. Now let’s look at some records and predictions for current times. There’s a little slide, there, yes. The biggest dip came in the last quarter or 2008. Reading a bit, I found a couple of sources describing that change in dire terms. One was “alarmed” and the other called it a “plunge”. But then one of the sources was a skeptic concerning the qualities of our current leader, and the other was French. True, in the fourth quarter of last year, the GDP “plunged” a little over six percent. That’s bad. But in the Great Depression, the drop was over thirty percent. That’s really bad. Take a look at this graph of GDP over several years. Doesthat make you feel any better? Maybe it should.

Current GNP

It looks like our hard times, when compared to the Great Depression, might be considered only less good times. Judging by GDP numbers, it looks like recession out in front of depression 3-0.

And what is the effect, really, of the change in GDP? Well, it depends on who you are and what you value. GDP is a general measure of production, valuable to economists and other business machines, and doesn’t take into account things that matter to everyday humans, like quality of life. Look around you. What’s it like? Do you have air conditioning or heat or whatever climate control you need? Probably so. If you are reading this, you have a computer or at least access to a computer. Wow, you’re doing great! How long have you been hungry? Probably not long enough. Witness the obesity problem in the US. I could go on, with fashion, pimped rides, and bling coming into play. But look at the real depression. So many had so little, or next to nothing really. And least of all did they have any hope for change. Look at the pictures coming out of the Great Depression. Have you ever been in such a state? Have you ever seen a picture of yourself with that look of despair in your eyes? Most of us haven’t, and probably won’t.

Children of Great Depression

By the effects we can feel of this slightly less prosperous GDP, I’d say recession winning by 4-0.

How long ago were the good ol’ days? Opinions vary. Some say this recession started as long ago as early ’08 or even late ’07. Trying to pin down the duration is hard. But the term depression is differentiated from recession by duration, as well as severity. A general consensus is that a recession might last eight to sixteen months and not have to be promoted to a depression. The Great Depression lasted ten years or so. Ten years ago we were partying like it was 1999. So we have some time yet to regroup and recoup our loses. I admit I’m getting tired of it, myself. But I’m not homeless, yet, or hungry to the point of standing in line for a bowl of soup.Taking a look at us now, we still look pretty prosperous. So then, recession theory advances over depression theory 5-0.

So now that we agree that we are in a recession, not a depression, what shall we do about it? I think we also agree that we’d like to see the not-so-great time get better. The answer depends on who you ask. Some believe in deficit spending. That can give a quick jolt to the economy and get an upward trend going. Well we’ve had plenty of that. The current times will likely be cited in future articles like this saying: “Look at the spending in 2009 under the Obama administration. They spent $Xtrillon and then…” We have to wait and see what they will say. Some say tax cuts that will enhance corporate wellbeing and encourage investment will do the trick. These people are often known as Republicans. Some believe in taking no action at all. That’s called laissez-faire, meaning leave-it-alone. They say the market, if left alone, will correct its ills. Many people point out that years of this policy in place have lead us into this situation. These people are often known as Democrats. And some pin their hopes on Federal Reserve action. That is happening now. The same people that will be writing those future articles about the deficit spending will be mentioning the reserve action too. Effect not yet apparent.

So we’re not in a depression. So why be depressed? Optimism may be the real key to our success. I think so. Lou Dobbs thinks so. And the President of the United States thinks so. Great minds think alike. Hang on, do what you can to help, and soon we’ll be on the sunnyslope again.

About the Author -

Rebekah started in the Forex industry as an intern in 2001, and worked her way up the ranks to a C-level management position. She enjoys the field of trading as well as MMA fighting, shooting ranges, and action movies.

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