Thank goodness we are not in a Depression by Tony Green

At least we are not in a depression.....

Is the current recession in fact a depression and no one in the media wants to say so? We are all clear on the end result; the economy is crippled, families are shattered, and lives have been altered.

A recession is defined as two consecutive quarters of negative growth in the gross domestic product (GDP) which is the total value of goods and services produced. investorwords.com states a recession is, in general, accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. A recession is, by and large, considered less harsh than a depression, however, if a recession continues long enough the occurrence is classified as a depression.

The definition of a depression is not so clear - a severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels. A depression is defined by its length; it’s usually large increases in unemployment; and falls in the availability of credit, often due to some kind of banking or financial crisis.  Price deflation and bank failures are also common elements of a depression which are not normally a part of a recession.

I think people, in general, want to think the Great Depression was a one- time occurrence assuming it could never occur again. Didn’t the depression happen once before?  In 1929, a perfect storm of events combined to cause the stock market to crash. Is the current scenario any different from where multiple separate occurrences all converge to wreak havoc on the world’s economy?

During the Great Depression the GDP of the United States decreased by 33% and the rate of unemployment increased to 25%. When compared to the current recession according to bea.gov the revised estimates show for the period of contraction from 2007 to 2009 the economy contracted at an average annual rate of 3.5% while the unemployment rate reached 10%. To get an appreciation on how this compares to the economic environment in December 2007, prior to the recession, the unemployment rate hovered at 5.0% while by June 2009; the rate had jumped to 9.5%. In the months, the unemployment rate peaked at 10.0 percent.

After reviewing the numbers I feel better our nation’s economy has not reached depression levels. (Yet) But with the turmoil and the fact it will take us years as a country and a planet to fully recover, in actuality, what is the difference to people other than economists in what this challenging economic period is called?