Are We In A Depression?

Are We In a Depression?
Monday, June 22nd, 2009

One of the questions that seems to be popular since the economic events of 2008 is whether we are in a Depression. As such, for the next few posts I will be commenting on the topic.

Here are two links that indicate that we are not in a Depression:

http://seekingalpha.com/article/142831-great-depression-ii-it-s-not-even-close?source=email

http://www.calculatedriskblog.com/2009/06/update-what-is-depression.html

Yet, as indicated in this following link, the rate of decline in various measures seems to indicate that our experience to date at least matches, if not exceeds, that of The Great Depression.

http://www.ft.com/cms/s/0/b31c06a2-5a7a-11de-8c14-00144feabdc0.html

So, as seen above, there seems to be contrasting measures regarding our current economic weakness. At this point, most in the mainstream use the term “severe recession” to classify our current economic predicament.

In my opinion, on an “all things considered” basis, I think the “severe recession” classification is apt, but one could also strongly argue for using a “mild Depression” tag at this point in time. The Unemployment Rate and GDP decline seem to be cited as the predominant statistics in determining whether a Depression exists. While it is true that both of these measures are not near those that would indicate a Depression, there are an array of other measures that have undergone severe declines and currently stand at (or near) multi-decade lows. As well, it just seems like there is an extraordinary level of stress evident from a fundamental perspective that is far out of the ordinary even for “tough times.”

Regardless of the economic classification used, I think the more important issue is the characteristics of the economy; the underlying problems and how easily they can be solved; and the economy’s future trend – either recovery or further decline. Of course, whether we are on a path to Sustainable Prosperity, as well as associated issues, should be considered.

SPX at 921.23 as this post is written