Recession, Depression, Contraction - Semantics or Clarification?

"WASHINGTON (AP) — A Depression doesn't have to be Great — bread lines, rampant unemployment, a wipeout in the stock market. The economy can sink into a milder depression, the kind spelled with a lowercase 'd.'

"And it may be happening now.

"The trouble is, unlike recessions, which are easy to define, there are no firm rules for what makes a depression. Everyone at least seems to agree there hasn't been one since the epic hardship of the 1930s.

"But with each new hard-times headline, most recently an alarming economic contraction of 6.2 percent in the fourth quarter, it seems more likely that the next depression is on its way.

"'We're probably in a depression now. But it's not going to be acknowledged until years go by. Because you have to see it behind you,' said Peter Morici, a business professor at the University of Maryland.

"No one disputes that the current economic downturn qualifies as a recession. Recessions have two handy definitions, both in effect now — two straight quarters of economic contraction, or when the National Bureau of Economic Research makes the call.

"Declaring a depression is much trickier.

"By one definition, it's a downturn of three years or more with a 10 percent drop in economic output and unemployment above 10 percent. The current downturn doesn't qualify yet: 15 months old and 7.6 percent unemployment. But both unemployment and the 6.2 percent contraction for late last year could easily worsen.

"Another definition says a depression is a sustained recession during which the populace has to dispose of tangible assets to pay for everyday living. For some families, that's happening now." "It may not be another Depression, but it might be another depression"



"International Monetary Fund chief Dominique Strauss-Kahn said the world's advanced economies -- the U.S., Western Europe and Japan -- are 'already in depression,' and that the IMF could slash its global growth forecasts further. The "worst cannot be ruled out,' he said." IMF Chief Says Nations in 'Depression'



"What Does Contraction Mean?

"A phase of the business cycle in which the economy as a whole is in decline. More specifically, contraction occurs after the business cycle peaks, but before it becomes a trough. According to most economists, a contraction is said to occur when a country's real GDP has declined for two or more consecutive quarters.

"Investopedia explains Contraction

"For most people, a contraction in the economy can be source of economic hardship; as the economy plunges into a contraction, people start losing their jobs. While no economic contraction lasts forever, it is very difficult to assess just how long a downtrend will continue before it reverses because history has shown that a contraction can last for many years (such as during the Great Depression)." Investopedia: Contraction



"What Does Depression Mean?

"A severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels.

"Investopedia explains Depression

"In times of depression, consumers' confidence and investments decrease, causing the economy to shut down. The classic example of this occurred in the 1930s, when the Great Depression shook the global economy." Investopedia: Depression



"There is an old joke among economists that states:

"A recession is when your neighbor loses his job.

"A depression is when you lose your job.

"The difference between the two terms is not very well understood for one simple reason: There is not a universally agreed upon definition. If you ask 100 different economists to define the terms recession and depression, you would get at least 100 different answers. I will try to summarize both terms and explain the differences between them in a way that almost all economists could agree with.

"Recession: The Newspaper Definition

"The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.

"This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.

"Recession: The BCDC Definition

"The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year." "Recession? Depression? - What's the difference? - What's a recession? - How do we know if we're in one?"

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Volcker, Soros: Where Have All the Fundamentals Gone?

Paul Volcker, George Soros: A faster slide, worldwide, than in the Great Depression:

"'One year ago, we would have said things were tough in the United States, but the rest of the world was holding up,' Volcker told a conference featuring Nobel laureates, economists and investors at Columbia University in New York. "'The rest of the world has not held up.'"

"In fact, the 81-year-old former chairman of the Federal Reserve said, "'I don't remember any time, maybe even the Great Depression, when things went down quite so fast.'" "Economic Crisis May Be Worse Than the Great Depression"



"NEW YORK (Reuters) - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

"Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

"He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

"'We witnessed the collapse of the financial system,'" Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom.'" "Soros Sees No Bottom For Financial 'Collapse'"



Fears of massive migrations, extended world wars - due to climate change:

"CAPE TOWN, South Africa — If we don't deal with climate change decisively, "'what we're talking about then is extended world war,'" the eminent economist said.

"His audience Saturday, small and elite, had been stranded here by bad weather and were talking climate. They couldn't do much about the one, but the other was squarely in their hands. And so, Lord Nicholas Stern was telling them, was the potential for mass migrations setting off mass conflict.

"'Somehow we have to explain to people just how worrying that is,'" the British economic thinker said." "Lord Nicholas Stern Paints Dire Climate Change Scenario: Mass Migrations, Extended World War"



Meanwhile Obama goes for halving the national debt within 4 years:

"President Obama is putting the finishing touches on an ambitious first budget that seeks to cut the federal deficit in half over the next four years, primarily by raising taxes on businesses and the wealthy and by slashing spending on the wars in Iraq and Afghanistan, administration officials said." "Obama to Unveil and Ambitious Budget Plan"



"Federal Reserve Chairman Ben Bernanke takes center stage this week, as he goes up to Capitol Hill to present the Fed’s twice-yearly Monetary Policy Report to the Congress. Current circumstances are starkly different from those surrounding the Fed’s last report in July. Back then, the Fed projected the economy would grow between 1% and 1.6% in 2008 and between 2% and 2.8% in 2009, while it was concerned about energy-fueled inflation. The numbers Bernanke will present to the Senate Banking Committee on Tuesday will show the economy contracted about 0.5% last year, along with a projected decline between 0.5% and 1.3% this year. And now the Fed’s worry is deflation, not inflation." "Vital Signs: Bernanke Speaks to Congress"

"He told politicians on Capitol Hill that if White House fiscal stimulus proposals and the continued financial assistance from the Fed have their desired effect, the American economy should begin to grow again in the second half of this year.

"Mr Bernanke said: 'Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.'" "Ben Bernanke: best hope is recovery in 2010 -
The Federal Reserve chairman said that the US economy will only recover if Washington’s bail-out plans succeed this year"

Bernanke's predictions about housing are reviewed along with forecasts by Greenspan and others about housing back in January 2008:

"Check out this story over at CNN/Money about just how bad some economists did with their 2007 housing predictions. Of course the nation's last two chief economists, Alan Greenspan and Ben Bernanke are at the top of the list." "Bad Housing Predictions of 2007"

"The Fed expects the jobless rate to rise to close to 9 percent this year, and probably remain above normal levels of around 5 percent into 2011. The recession, which started in December 2007, already has killed a net total of 3.6 million jobs.

"Fed policymakers think that a 'full recovery' of the economy is likely to take more than two or three years, Bernanke said." "Fed chief: U.S. suffering 'severe contraction'"

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