We are in a Depression

[john5746]

I think we are in a depression. There is no formal definition, but...

 

A common rule of thumb for recession is two quarters of negative GDP growth. The corresponding rule of thumb for a depression is a 10 percent decline in gross domestic product (GDP). Considered a rare but extreme form of recession, a depression is characterized by "unusual" increases in unemployment, restriction of credit, shrinking output and investment, price deflation or hyperinflation, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile/erratic relative currency value fluctuations, mostly devaluations. Generally periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced given current resources and technology (potential output).

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKMkV532Xkq0&refer=home

 

With such a large decrease in just one quarter and with all the company and bank failures, it should be easy to call this one.

[jackson33]

I think we are in a depression. There is no formal definition, but...

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKMkV532Xkq0&refer=home

 

With such a large decrease in just one quarter and with all the company and bank failures, it should be easy to call this one.

 

Technically, the 4th quarter drop entered the US into a recession, the second quarter with any contraction....(-.2 and -6.2%). For the year 2008, the GDP actually increased 1.28%. Further the 6.4% total reflects previous quarters, not a contraction of 6.4% off the 15Trillion GDP.

 

It's my understanding the suggested 10% figure is based on a period of time and with a result of a 10% drop in actual GDP. A combination where the GDP drops to a pre determined or established figure. In this case that would be

somewhere around a GDP of 13.5T GDP...

 

No, under any scenario, we are not now in a depression, but most certainly could enter the technical definition in the next couple years. Frankly the folks trying to provide for themselves or a family, it makes no difference.

[john5746]

Technically, the 4th quarter drop entered the US into a recession, the second quarter with any contraction....(-.2 and -6.2%). For the year 2008, the GDP actually increased 1.28%. Further the 6.4% total reflects previous quarters, not a contraction of 6.4% off the 15Trillion GDP.

 

Thanks for the clarification. These things can only really be called in hindsight, since time is required for everything to play out. Still, I think this time period will be viewed as a depression eventually.

[Pangloss]

I wonder if there's a risk here in calling it a "depression" when the standard of living remains so high for most people. This situation may actually not be all that different from the 1930s, relative to technology at the time, but it certainly doesn't seem to "jive" with my school-educated and Hollywood-modeled view of what life was like during the Great Depression.

[Mokele]

Well, let's not forget that part of what made the Great Depression suck so much was how long it lasted. Perhaps it was similar to now at a comparable time in? Or perhaps the social safety nets we have in place now are slowing the descent?

[Pangloss]

I see your point there. But does it really seem like we're all destined for the poor house? Really? I mean I guess it's possible, but it seems more likely to me that we're looking at an extended period of slowdown more than anything else. There will be plenty of examples of individual suffering, I'm sure, but, for example, is that the majority or the minority? And what was the percentage of "people who were really suffering" during the Great Depression -- the majority or the minority?

 

It might be an interesting question to explore. Maybe my impression of the Great Depression has always been wrong -- maybe the majority of Americans were really "okay" during that time, just careful about not losing their jobs, saved their money more than usual, and didn't go to the movies quite as often.

[Mokele]

Yeah, I'm not really clear on how much of our perception of the GD is real and how much is based on B&W photos of homeless kids and lines for soup kitchens.

 

Of course, the other side of the coin is that we *love* doomsaying. The end of _______ is always right around the corner. Maybe it's because without that imminent threat, most people would be bored.

[npts2020]

Well, it will probably be a couple of years before any comparison with the Great Depression is valid but IMO all of the conditions for equalling or exceding it are present in today's economy. Whether this actually happens or not depends on how fast and effectively insolvent financial institutions are dealt with. The current downturn can only get worse until an accounting for their assets (hint there aren't (m)any) has occurred. The current "stress tests" of the banks should have been done prior to the first "bailout". If this had been done, I think many of the corporations "too big to fail" would have been put in recievership to fail. All of this is related to trying not to lose hundreds of trillions of dollars by a collapse of the derivative market which almost certainly will occur when as few as six or eight of their underwriters default (I can think of that many in financial trouble i.e. having gotten bailout money, off the top of my head). What will have to happen is that either the market is propped up ala even bigger bank bailouts until economic conditions return to friendlier conditions (tilting at windmills IMO) or admission that the market is basically worthless and starting over from scratch (with maybe a regulation or two). I say the sooner we get the accounting over and weed out failure, the better off we will be. The consequences of losing hundreds of trillions of dollars in wealth will not be trivial, however......

[iNow]

Some are saying it will last for 36 months (3 years):

 

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=a487Kmeq1Eog&refer=home

Nouriel Roubini, the New York University professor who predicted the current financial and economic crises, said the recession may last a total of 36 months. It’s possible, he wrote, that the slump, instead of following a typical “U” shape back toward growth, “may turn into a more virulent L-shaped near depression.”

[Saryctos]

Of course, the other side of the coin is that we *love* doomsaying. The end of _______ is always right around the corner. Maybe it's because without that imminent threat, most people would be bored.

 

Two things also coincide with doomsaying, Hope and Change

[john5746]

Well, it will probably be a couple of years before any comparison with the Great Depression is valid but IMO all of the conditions for equalling or exceding it are present in today's economy.

 

Well, I hope it will not be equal or greater than the Great Depression, but I do think it will be considered a depression. While the standard of living should stay above that of the 30's, I am not sure our ability to recover relative to the global economy will be as strong. Our piece of the world pie will probably shrink.

[jackson33]

Well, I hope it will not be equal or greater than the Great Depression, but I do think it will be considered a depression. While the standard of living should stay above that of the 30's, I am not sure our ability to recover relative to the global economy will be as strong. Our piece of the world pie will probably shrink.

 

Arguments on most any economic issue of today, here or anyplace, is what process to use to recover from this recession. Common sense, valid or not, tells you we will recover, but under what economical system will we be using there after. Since the thirties each recession has used virtually no government stimulus, only the relaxing of regulation and/or taxes and Free Market/ Capitalism the motor.

 

"Piece of the pie", good point, but under Capitalism and the World Community, high tide indeed raises all ships.

 

In 2000, the US and World Markets suffered from the burst of the Tech Bubble, some estimating up to 10 Trillion worldwide just gone from values of portfolios to values in thousands of high tech companies, a great deal of which was never recovered.

 

The point; World GDP in 2000 31.5 Trillion, of which the US held 31% with

9.8T, yet by 2008 was only 20% of the Worlds 70.7T GDP. China on the other hand held 3% in 2000, with 1T GDP and by 2008 had 7.8T of the 70.7T world GDP or 11%. Rather than breaking down per capita figures by country the World Population in 2000 was 6 Billion compared to 6.6 B in 2008, meaning on the World stage every persons share doubled, Chinese folks (1.6B) probably the most, but the US (300M) not far behind percentage wise.

The US and China Ranked 1-2 in 2008 GDP (Wikipedia)...

 

Leaving the arguments on HOW we end this cycle to other threads, if it was to follow the 2000 or the 1991 or the 1979-82 recessions, recovery itself to Americans would be as great or better than most all other Nations. This should be the least of your worries...IMO.

[iNow]

Since the thirties each recession has used virtually no government stimulus, only the relaxing of regulation and/or taxes and Free Market/ Capitalism the motor.

And yet that's PRECISELY what got us into this fuster cluck... the relaxing of regulation and free market capitalism... fancy that.

 

 

The point; World GDP in 2000 31.5 Trillion, of which the US held 31% with

9.8T, yet by 2008 was only 20% of the Worlds 70.7T GDP. China on the other hand held 3% in 2000, with 1T GDP and by 2008 had 7.8T of the 70.7T world GDP or 11%.

Again, this happened because of free market capitalism. The US stopped manufacturing at appreciable levels, and was definitely producing at a much lower level than it did previously (since the lowest cost products came from outside countries). The US became almost fully a consumer-based economy with no appreciable production nor governmental investment within our borders. This drove the debt increasingly higher, the savings rate increasingly lower, and then when people started losing jobs (from the lack of new job creation and the realization of actual home values... which had been artificially inflated due to lack of regulation... hence serving as the seed crystal on which this mess propogated) we entered this self-perpetuating downward spiral. So, again... it was the free market, lack of regulation, and also the general lack of investment from the goverment on internal needs which caused our significant drop in economic statistics cited by you here. Fancy that.

Edited March 4, 2009 by iNow
trimmed quote

[bascule]

Since the thirties each recession has used virtually no government stimulus, only the relaxing of regulation and/or taxes and Free Market/ Capitalism the motor.

 

Eh, what about the $160 billion bailout of the S&Ls in the '80s... and Bill Clinton's $496 billion stimulus in 1993 (passed without a single Republican vote)

[jackson33]

And yet that's PRECISELY what got us into this fuster cluck... the relaxing of regulation and free market capitalism... fancy that.

 

Again, this happened because of free market capitalism. The US stopped manufacturing at appreciable levels, and was definitely producing at a much lower level than it did previously (since the lowest cost products came from outside countries). The US became almost fully a consumer-based economy with no appreciable production nor governmental investment within our borders. This drove the debt increasingly higher, the savings rate increasingly lower, and then when people started losing jobs (from the lack of new job creation and the realization of actual home values... which had been artificially inflated due to lack of regulation... hence serving as the seed crystal on which this mess propogated) we entered this self-perpetuating downward spiral. So, again... it was the free market, lack of regulation, and also the general lack of investment from the goverment on internal needs which caused our significant drop in economic statistics cited by you here. Fancy that.

 

As mentioned, I'd rather leave cause to other threads, but since YOU, I will respond off topic. What caused this particular 'SAID' crisis, was a combination of regulation and manipulation by Congress over Freddy and Fannie, dating back to 1978/79, when in fact Fanny was part of the Congressional Budget. They privatized Fanny and established Freddy, under their control.

 

My objective in comparing other recessions to this and the decrease over time to National/International GDP, has nothing to do with cause, but rather US standards of living and John's worry.

 

But since you; When GWB and/or Paulson approached the general public and Congress, this was the first time in history where a setting President or any administration declared an emergency on a future economy. I feel, there may have been a reason but rather extensive to explain. The point is Obama or his advisor's picked up on this taking it to the limits, also for reason. There was nothing in the housing bubble or impending bank failures, that needed pre-empting, for the sake of argument IMO. Further IMO, most (95%) of public concern or the lack of confidence, the markets reacted, followed by consumer and business withdrawal from the consuming arena and the now problem with NO CONFIDENCE in any pending plan to correct.

[iNow]

As mentioned, I'd rather leave cause to other threads, but since YOU, I will respond off topic.

 

<...>

 

But since you; When GWB and/or Paulson approached the general public and Congress....

 

<...>

 

I feel, there may have been a reason but rather extensive to explain. The point is Obama or his advisor's picked up on this taking it to the limits, also for reason. There was nothing in the housing bubble or impending bank failures, that needed pre-empting, for the sake of argument IMO.

 

Huh?

 

Is it possible that english is not your first language?

[Pangloss]

Eh, what about the $160 billion bailout of the S&Ls in the '80s... and Bill Clinton's $496 billion stimulus in 1993 (passed without a single Republican vote)

 

Er, what $496 billion stimulus package from 1993?

 

The economic bill from 1993 that is usually cited with references to unilateral Republican opposition is the Deficit Reduction Act, which I don't think was a stimulus bill -- it was mainly about spending cuts and tax increases (this is the raise in Alternative Minimum Tax and the increase to 39.6% for the highest bracket that the Bush tax cuts rolled back).

 

I've seen quotes from that battle used to show hypocrisy in Republicans' current statements regarding the new stimulus bill, such as Newt Gingrich saying that it would lead to recession, when of course what actually followed was a nice boom and a temporary surplus (which was not in the least bit explained by a few billion in spending cuts and a massive tax hike, but that's politics for you). Some of those quotes are quite amusing and fun to watch in action.

 

But if there was a near-500-billion-dollar stimulus plan 16 years ago that I'm just not remembering, by all means share. That would be quite an oversight in the recent public debate -- you'd think something like that would have come up before!

[bascule]

Er, what $496 billion stimulus package from 1993?

 

Not really sure... I was 11 years old at the time. Just a meme circulating around the liberal blogosphere I can't immediately verify with the Google.

 

I hate sourcing something with DailyKos (and I'm sure you do to) but they've got some nice charts and stuff about... whatever they're talking about:

 

http://www.dailykos.com/story/2009/2/14/172556/803/63/697617

 

[iNow]

While we can quibble whether it was a stimulus or a deficit cutting measure, it was $496B, and it DID help get us out of recession (contrary to Jackson33s claim of nothing but deregulation and tax cuts since the 30s... I suggest he's been watching Faux News for too long and no longer cares about his facts matching reality... he tends to say whatever fits his worldview, not relying only on what is valid and true when constructing arguments). Further, the events of 1993 were opposed by Republicans in EXACTLY the same manner they are opposing actions now, despite the enormous benefit gained by the 1993 actions of Clinton after they barely passed.

 

 

 

http://www.perrspectives.com/blog/archives/001391.htm

 

In 1993, Bill Clinton's $496 billion stimulus and deficit-cutting program passed without a single Republican vote. But in 1981 and again in 2001, substantial numbers of Democrats acquiesced in backing regressive Reagan and Bush tax cuts which, also as predicted, drained the federal treasury.

 

The table below tells the tale

(

see above chart from Bascle

)

. (Note that figures are not in real dollars adjusted for inflation.) While some turncoat Democrats helped Reagan and Bush sell their supply-side snake oil, Republicans were determined to torpedo new Democratic presidents:

 

<...>

 

Inheriting massive budget deficits and unemployment topping 7% from Bush the Elder, Clinton's $496 billion program was nonetheless opposed by every single member of the GOP, as well as defectors from his own party. As the Times recounted, it took a tie-breaking vote from Vice President Al Gore to earn victory:

 

An identical version of the $496 billion deficit-cutting measure was approved Thursday night by the House, 218 to 216. The Senate was divided 50 to 50 before Mr. Gore voted. Since tie votes in the House mean defeat, the bill would have failed if even one representative or one senator who voted with the President had switched sides.

Edited March 4, 2009 by iNow

[bascule]

A 1993 article:

 

http://archive.deseretnews.com/archive/283248/SENATE-DEMOS-PASS-CLINTONS-496-BILLION-PLAN-TO-REDUCE-DEFICIT.html

 

The main ingredients: $273 billion in new taxes over the next five years - one of the biggest tax increases ever; defense reductions of $106 billion below what President Bush had recommended; and $117 billion in savings from non-defense programs, chiefly by cutting the size of government, reducing Medicare reimbursements for doctors and borrowing less money.

 

That sounds awesome! Thumbs up Bill Clinton.

 

So yeah, his bill was supported in part by a huge tax increase, with hopes of lowering the national debt.

 

I wish Obama would do the same thing... get rid of the tax relief, raise taxes, and pass the bill without any Republican support. Of course, he's already made promises to the contrary, so I guess that's out the window.

[Pangloss]

Actually that Washington Post article (linked as the source for that $496 billion figure) calls it a $19 billion stimulus plan.

 

That economic plan ultimately passed in August, giving the young president a victory. But his $19 billion stimulus plan -- one-fortieth of the current legislation -- was too controversial to survive the partisan battles.

 

I think what may be happening is that they're talking about the same second-half-of-the-year omnibus spending bill that we've got Congress debating right now. There must have been a Clinton attachment of $19 billion for "stimulus" purposes. That would have come up right about the time they they're talking about -- early 1993. An eerily similar set of circumstances, isn't it?

 

Politically speaking Bascule's point is a great one -- the parallels are really interesting. I was just aghast at the thought that there might have been a multi-hundred-billion-dollar emergency/unbudgeted spending bill 16 years ago!

 

Edit: Just to reiterate that point in support (I feel bad about interrupting with my confusion over the amounts), I think this chart does show that Democrats have been more willing to compromise on this issue than Republicans:

 

 

And since Republicans spent the farm when they were in charge, it's not about ideological differences, it's about having a hate-on. This seems to support the general complaint about Rush Limbaugh leading the party, doesn't it? Obviously this doesn't hold true for ALL Republicans, but it does feel like a demonstrable trend in party leadership.

Edited March 4, 2009 by Pangloss

[jackson33]

Eh, what about the $160 billion bailout of the S&Ls in the '80s... and Bill Clinton's $496 billion stimulus in 1993 (passed without a single Republican vote)

 

Probably should have used 'comparatively' rather than 'virtually no', so yes under todays terminology, I suppose the S&L Bailout (end cost to taxpayers 124.6 B) would count as stimulus. Tax cuts, technically are pure stimulus, in my belief, but are also costly with no recorded results. To my point, under the cuts by JFK, Reagan and Bush, those results have been established. I'll add, there were near 500 S&L's involved and the Federal could have been liable for a great deal more. By comparison AIG (alone) has now received 180B, for it's single business plan.

 

iNow; If you think I supported Bush/Paulson for propping up, whatever they thought was being propped up, you would be wrong. I have argued, they may have known things not mentionable (political year or from China) and could not impose additional tax cuts, late in his term, but w/o clarification (never given if known) seems a waste of tax payers money.

 

Yes, I do personally think deregulation and tax cuts could have solved the current economical problems. Bush or more likely Congress (some cases both), could have lifted Federal restriction on Gas/Oil/Nuclear exploration/development, anytime in the long line to increased imports, eliminating the eventual hidden tax (export $). They could have temporarily deregulated the auto industry (CAFE standards) anytime since 1996-8, when the big three first showed signs of failure, they could have stopped mandating State requirements on a host of issues, including all forms of welfare and they could have stayed out of the Medical system all together.

What we have done is quite the opposite and the potential results may not be correctable.

 

I have addressed the Housing Bubble, several times. Originally and to degree today remains an area problem, not national. California, Arizona, LV, Florida, all of which were simple demand didn't keep up with supply. Detroit, also was involved, but because demand dropped below existing properties (people moved out). Most areas, even in the States listed remained around 1-2% default rates, well into 2008. Government IMO, exaggerated all the problems, with an added influence of the political campaign rhetoric, followed by actual and needless actions by government. I don't care how good things may be over all, there are going to be segments of industry that will suffer.

 

If my post bother you (grammar/spelling/content), please report them to the proper authority, am aware you know how. However using this for an argument against content, should be beneath your intellectual level. Factually you and I have very different opinions on social/economical/political issue and any discussion could be beneficial to the forum, if restricted to content....IMO.

[iNow]

iNow; If you think I supported Bush/Paulson for propping up, whatever they thought was being propped up, you would be wrong.

Who said I think that? What did I write that gave you this impression, and how is it related to my actual argument?

 

 

Yes, I do personally think deregulation and tax cuts could have solved the current economical problems.

And, I suppose, you're welcome to that opinion. However, as I was trying to point out to you, the evidence available to us suggests that it was precisely deregulation and the "tax cuts solve everything" approach which created this mess. The data supports my position, and counters yours. Again, you're welcome to your opinion on this matter, but your opinion is non-representative of reality.

 

 

Originally and to degree today remains an area problem, not national.

You're right. It is an "area" problem, not a national problem. However, that "area" is the entire planet earth, not small towns in rural US as you are trying to suggest. You are correct that the problem is not national, but incorrect in suggesting it was smaller. This is clearly and obviously a global issue, so the way you are attempting to frame your arguments concerns me since it so far removed from what has actually been happening.

 

 

Government IMO, exaggerated all the problems, with an added influence of the political campaign rhetoric, followed by actual and needless actions by government.

Are you now trying to suggest that the realization that our home values were over inflated and that we'd been experiencing unsustainable inflationary growth for the past several years is a direct result of rhetoric in the 2008 Presidential campaign? That seems quite non-sequitur to me, and a baseless assertion at best, but perhaps I misunderstand the point you're trying to make. As it stands, however, this argument seems quite silly.

 

 

If my post bother you (grammar/spelling/content), please report them to the proper authority, am aware you know how. However using this for an argument against content, should be beneath your intellectual level. Factually you and I have very different opinions on social/economical/political issue and any discussion could be beneficial to the forum, if restricted to content....IMO.

 

The point is, Jackson, that half the time I can't even comprehend your content because you leave out these key little sentence objects which we refer to as "verbs" and "nouns." You even did it in the first sentence which I just quoted. In this case, I'm not "arguing against your content" or against your grammar. I'm plainly saying that much of what you say doesn't make any sense, is incomprehensible and rather poorly structured, and I'm imploring you to take the time to type actual sentences and proofread what you write before hitting the submit button.

 

I can tell you have a lot to offer to these discussions. You're clearly well informed about all manner of details, and I can accept that despite our obvious ideological differences and distinct approaches to these issues. However, too often reading your posts leaves me spending more time trying to infer what you intended to say and speculate about what it is mean (what point you're trying to convey), as opposed to digesting your actual argument and responding to its key points. In sum, stop leaving out key verbs and nouns so your sentences start making sense and I'll take you a lot more seriously.

Edited March 4, 2009 by iNow

[jackson33]

And, I suppose, you're welcome to that opinion. However, as I was trying to point out to you, the evidence available to us suggests that it was precisely deregulation and the "tax cuts solve everything" approach which created this mess. The data supports my position, and counters yours. Again, you're welcome to your opinion on this matter, but your opinion is non-representative of reality.

 

You're right. It is an "area" problem, not a national problem. However, that "area" is the entire planet earth, not small towns in rural US as you are trying to suggest. You are correct that the problem is not national, but incorrect in suggesting it was smaller. This is clearly and obviously a global issue, so the way you are attempting to frame your arguments concerns me since it so far removed from what has actually been happening.

 

Regulation hinders growth by limiting competition, establishing limits and the natural flow/operation of any business. Congressional regulation, in particular with Fannie/Freddy leading to the Banking/Financial Institutions IMO created the problems of today. Unchecked, it's not likely Sub-prime would have ever been established, prime rates held at 1% over an unacceptable time and loans would have been made based on actual values and qualifications. If you understand the problem today, it's that Banks have gone back to traditional lending, those that are now qualified are not borrowing. I wouldn't either, with all the uncertainty.

 

http://www.econweekly.com/2008/03/spains-mortgage-funding-is-different.html

 

No, defaulting rates are not an international problem. The US traditionally has always had a high default rate (2-3%) by comparison. Much of the US today is still around that 2-3 % and I have listed the highest locations. What is NOW a worldwide problem is the US (largest consumer of product/service) has shut down and our banks are connected (selling bundled notes) many are hurting, then add the confidence levels.

 

Yes, I credit the political campaign in part to the problem. Media/Obama/Clinton and the DNC claiming the economy was the worst since the Great Depression, before any problem existed. Bush (possibly for political reason) calling in McCain/Obama for a conference on a pending problem, then the Paulson affair, followed by more doom and gloom scenarios, it's a wonder folks weren't jumping out of building or off bridges. Then Madoff and the rest, Hedge Fund Schemes, political figures being indited by the gross (both parties) and now the Tax Evasion.

[Pangloss]

You do seem to have a bug in your computer that randomly deletes a word every few sentences.