Recession or Depression

[TB Roye]

When does the Economy go from Recession to Depression? This not intended to be political but things just don't sound good and I am starting to really get worried. Being retired on on SS and my California State Retirement things don't look good. The Ca budget is in the tank and they can't seem to fix it. One son has lost his job in Idaho and the other is off beacuse of neck surgery and is in rehab getting redady to return to his job building the new
Bay Bridge depending it there is money available to continue the work. I have been through a couple of recessions in my life but nothing like this. So when do the change what it is called?

Tom

[cgallery]

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.

[ragswl4]

Found this on the net using the "recession or depression" as a search phrase.

"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."

I guess the decline is measured over a one year period. This AM I heard that GDP fell 3.8% in the last quarter. Much more of this and we will fall into the above definition.

A more light hearted definition is: " A recession is when your neighbor loses his job. A depression is when you lose your job."

I am also kind of like you, retired on a couple of pensions (Social Security in March) and living on fixed income. I guess I should be worried but at this point I am not. I feel horrible for the folks that still have growing families and lose their jobs. This situation we are in now is probably not a "short lived" event. I fear an even rougher ride ahead but I sure hope I'm wrong.

[cgallery]

It is my feeling that much of what we're experiencing now is purely psychological and less driven by economics.

What was once our national economy and is now more our global economy is like a nuclear warhead. Think of bad economic news as the detonator, and consumer sentiment/spending as the plutonium.

When people hear about a real estate subprime fiasco leading to a banking crisis, and hear one pundit after another draw comparisons to the Great Depression, they hunker down. Consumer sentiment wanes, which leads to retractions in other sectors of the economy.

So we're in the middle of a chain reaction now. People will continue to keep their money in their pockets until they're relatively certain their jobs are secure. Only then will they begin to spend more.

Will it end up as a depression? Nobody knows. If they say they know, then they are full of it. Just guesses. I'm guessing no.

[JR]

Hmm, I always understood a recession to be two consecutive quarters of negative GDP growth.

JR

[jonmulzer]

But they do need to keep more of their money. A depression, in the long-term, would be a good thing for the US economy. For probably close to a decade Americans overall have been spending 2% more than they earn. That is not sustainable. People as a whole today have no wealth, only debt. After the Great Depression we had a generation of savers. I look at those that I know that went through it and they were more likely to have significant savings and investments. If you have never suffered hardships such as that, you are less likely to save and invest. People today have no interest in actually paying off their homes, saving up to pay for something or buying a reasonable vehicle. "I want it now!" has become the mantra and that more than anything else has been the cause of this slide.

I know a retired accountant in his late 80's. Anytime I have an accounting or money question he is the one I go to. He and his wife have always lived very modestly and seem like any other person but one day I had a question about keeping track of investments and such and he started opening up books and Excel files to show me how he takes care of his. A very quick adding up of only what I had seen showed a net worth of over $15 million. I think we need something like what is occurring so we have more people like him and less people with $30K incomes and $50K in credit card debt with $150K mortgages.

[germdoc]

I'm depressed just thinking about it.

I think I'm gonna put on some loud music, pour myself a great big glass of denial, and drink myself silly...

[dbhost]

Hmm, I always understood a recession to be two consecutive quarters of negative GDP growth.

JR

If that's the case we were in a depression through the entire Carter Administration and well into Reagan's first term...

[master53yoda]

People have many definitions of a recession or a depression. the 10 % number is for definition purposes only.

What I observe is that if we go into a true deflation mode (the last quarter was more based on the correction of fuel pricing) that generates conditions in the market that cause a domino effect because goods can't be sold for what it cost to acquire them then the market can collapse. This can take extensive periods of time to recover from and historically the recover has been tied to wars absorption of the excess materials as the last true depression. An example is the auto industry right now, they can't make more cars if the ones they made last year are never bought. Placing the funds back into the system to buy materials for new cars. If deflation happens the whole economy will do what the real estate market did which could drive the economy into a barter system at the worst case.

[JR]

If that's the case we were in a depression through the entire Carter Administration and well into Reagan's first term...

Well, not exactly. There was high inflation during those times, so purchasing power was certainly compromised. But the GDP has grown in all but a few quarters since 1974. Indeed, if you can believe this chart, the trend goes all the way back to 1960.

http://useconomy.about.com/gi/dynami...%3FPopular%3DY

[bruce hylton]

If that's the case we were in a depression through the entire Carter Administration and well into Reagan's first term...

That certainly is a thought.

[cgallery]

A depression, in the long-term, would be a good thing for the US economy.

I'd like another opinion.

I know what you're saying. I'd prefer a carefully crafted plan that gets us to the same end w/o having to endure a full-on depression.

[Ed62]

I think what Jon had to say was certainly food for thought. We'd all prefer a carefully thought out plan to a depression. I have high hopes for this administration, but we'll see if they can get it right. Time will tell.

Ed

[herb fellows]

The downturn in the economy feeds on bad news, real or perceived. Right now, we have both.
The economy is bad, and people constantly hearing bad news every single day without exception makes it worse. We don't spend, the economy goes further down the toilet.
The economy goes further down the toilet, we spend even less.
Either reality or perception has to change for the economy to get better, because the good news is that it works the other way also.
If people think it's better, they will spend more and make it better. When it gets better, peole will spend even more, because hey, the economy is good!
Now all we need is a president who can either make it happen or make us believe we can make it happen.
Good luck, President Obama, I wouldn't want to be in your shoes!

[cgallery]

Now all we need is a president who can either make it happen or make us believe we can make it happen.

Perhaps they could create a hypnotist cabinet position.