A recession or a depression?

[SFG75]

U.S. GDP shrank 6.2% and now things are looking a lot worse than what has been projected.:sad: According to the New York Times, we are trending towards something worse than a recession, though many are hesitatn to use the infamous "d" word.

The fortunes of the American economy have grown so alarming and the pace of the decline so swift that economists are now straining to describe where events are headed, dusting off a word that has not been invoked since the 1940s: depression.

Economists are not making comparisons with the Great Depression of the 1930s, when the unemployment rate reached 25 percent. Current conditions are not even as poor as during the twin recessions of the 1980s, when unemployment exceeded 10 percent, though many experts assert this downturn is on track to be significantly worse.

Rather, economists are using the word depression — a subjective term with no academic definition — to describe a condition of broad and extreme economic distress that remains stubbornly in place for much longer than a typical downturn.

So, if we are not now, will we be in a depression or is this just a recession?

 

[Zolipara]

So, if we are not now, will we be in a depression or is this just a recession?

My crystal ball tells me it will be more of a depression. I think it will require bigger changes than many are willing to accept at the moment, so it will take time.

 

[SFG75]

I need to stop listening to the news. It turns out that the U.S. government will use $20 billion to prop up AIG for a THIRD time. The result if we don't?

"The government really does not have the option of letting AIG totally blow up," said Robert Haines, senior insurance analyst at CreditSights,

AIG's foray into the roughly $28.5 trillion credit default swap market left it heavily exposed to losses on toxic mortgage assets that it had guaranteed against default.


Haines said that European banks in particular, counterparties on many of AIG's outstanding derivative contracts, "would be hammered if the U.S. walked away."

Donn Vickrey, an analyst with Gradient Analytics, who has closely followed the financial deterioration at AIG said while "European banks are about two-third of the problem ... it would be a domino effect across the globe.

"The ensuing panic would be disastrous," he said.

The cycle here is truly a vicious one. As people feel their wallets and purses pinched, they draw back spending, which leads to employers laying off people, which leads to bankruptcies, defaulting mortgages, and they cut back spending, followed by.........

 

[Robert]

So, if we are not now, will we be in a depression or is this just a recession?

Still a recession unless you're living in Michigan. Despite all the difficulties, we're still seeing a lot of money spent on luxury items.

 

[SFG75]

My crystal ball tells me it will be more of a depression. I think it will require bigger changes than many are willing to accept at the moment, so it will take time.

I am beginning to believe more and more each day that you are right.:sad:

Yet many economists, myself included, actually argued that the plan was too small and too cautious. The latest data confirm those worries — and suggest that the Obama administration’s economic policies are already falling behind the curve.

To see how bad the numbers are, consider this: The administration’s budget proposals, released less than two weeks ago, assumed an average unemployment rate of 8.1 percent for the whole of this year. In reality, unemployment hit that level in February — and it’s rising fast.

Employment has already fallen more in this recession than in the 1981-82 slump, considered the worst since the Great Depression. As a result, Mr. Obama’s promise that his plan will create or save 3.5 million jobs by the end of 2010 looks underwhelming, to say the least. It’s a credible promise — his economists used solidly mainstream estimates of the impacts of tax and spending policies. But 3.5 million jobs almost two years from now isn’t enough in the face of an economy that has already lost 4.4 million jobs, and is losing 600,000 more each month.

Paul Krugman article

 

[Stewart]

Well, a recession is just two quarters or more of slumped GDP. If it's still dropping off a few years down the line, then it's a depression. So, for now, it's just a recession...with mass potential for worse. May be time to dig out those Steinbecks and put some Woody Guthrie on the player.