"Call him Voldemort, Harry. Always use the proper name for things. Fear of a name increases fear of the thing itself."
Albus Dumbledore to Harry at the conclusion of Harry Potter and the Sorcerer's Stone
Americans need to come to grips with the fact that we are in a depression. On the nightly news, every night the dance is the same. The talking heads are more than happy to call our current financial crisis a recession. As a people, we are familiar with recessions. Most of us have lived through more than one, and some of them were quite significant. None, reached the level of the Great Depression, however, and so time after time we are reminded that this is a recession, and not a full blown depression.
The Wikipedia definition of a depression is as follows.
In economics, a depression is a sustained, long downturn in one or more economies. It is more severe than a recession, which is seen as a normal downturn in the business cycle.
Considered a rare but extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation or hyperinflation are also common elements of a depression.
So lets take a look at the elements.
- Abnormal increases in Unemployment: Do we need a list? You can reach this plateau in the auto industry alone. Ford, Chrysler and GM all furloughed employees in December, and many have not come back. GM's auditors today said that it the company was in dire straits and faced possible bankruptcy. Add the parts distributors and suppliers, and we can establish that the increase in Unemployment is abnormal.
- Restriction of Credit: Remember in September, when we faced certain calamity, and John McCain said "Cancel the debate! This is too important!" The panic was, in part, because the credit markets were frozen. We gave the banks lots of money to unfreeze these markets, and it has not yet, to date, worked. Mortgages, car loans and other forms of credit are hard to get. Credit card companies are dropping people's credit lines. Restriction of Credit. . .Check.
- Shrinking output and investment. A 4th Quarter GDP Loss of
Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- decreased at an annual rate of 6.2 percent in the fourth quarter of 2008,
(that is, from the third quarter to the fourth quarter), according to preliminary estimates released by the
Bureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 percent.
'Nough said.
- Numerous Bankruptcies: The latest statistics
98,344 consumers filed for bankruptcy protection last month, up 29% compared with 76,120 filings a year ago, The American Bankruptcy Institute said. Filings rose 11% versus January.
- Reduced trade: In North America, trade is down a lot!
Trade using surface transportation between the United States and its North American Free Trade Agreement partners, Canada and Mexico, was 13.1 percent lower in December 2008 than in December 2007, dropping to $52.9 billion, according to the Bureau of Transportation Statistics of the U.S. Department of Transportation. December was the second straight month with a year-to-year decline of greater than 13 percent.
- Currency value fluctuations: Since the USD has not been the dominant currency for the last couple of years, it is actually strengthening, and the Euro, and the British Pound are dropping. Even though these are not huge changes, they still warrant mention.
So with all of these elements satisfied, can't we all just call it what it is. It's a depression. We're in it. We don't know if we are still going down or are on our way back up, and we won't until history tells us where we are. So can we please stop dancing around the word and say it for what it is.
We are in a depression. Can we now get on with getting out of it?