Is the Economy Headed for a Depression?

University of Maryland - Robert H. Smith School of Business ^ | December 05, 2008 | Professor Peter Morici

[Electric Graffiti]

"Is the Economy Headed for a Depression?"

Does the Pope wear a funny hat?

[RobRoy]

Recession is a technical term - so many months of no growth, etc. It is quantifiable.

Depression is not.

Recession is like saying the water is 120 degrees. Depression is like saying the water is really hot.

You can’t argue whether we are in a recession or not. According to stats we either are or aren’t. Depression is a subjective and squishy word. It is not backed up by numbers. Of course, we have to be in some sort of recession for the concept to hold water at all.

[ninonitti]

I believe a depression is a recession the government fixed

I've read that real growth began to slip in 2000 and has been propped up by cheap money since. What's gold done in that period? doubled or tripled?

Government has had plenty of warning and ignored it - they still think they can bring it in for a soft landing but without wings and wheels.

I think it's a good time to get friendly with local military commanders.

[Rutles4Ever]

My concern is that if China continues to devalue the yuan, the trade deficit is going to become parabolic (i.e., the death of American manufacturing) and force Congress to... wait for it... slap a TARIFF on Chinese goods. Now, when did that happen in history? Let me think...

I don’t think the gov’t wants any major devaluation of the yuan, because the logical progression is military conflict. If we try to protect our industry by hitting them with a tariff, the Chinese will continue to dump treasuries (to save their own hides) and the next step after that is to take control of shipping lanes and begin reviewing the region for low-hanging fruit (read: Taiwan) and nations with natural resources for the taking.

This is the black swan hatching from its egg. These bailout talks are of no consequence at all if China does not stop devaluing the yuan. With a couple billion unhappy citizens, it will be in China’s best interest to go to war - almost a mirror of America during our Depression.

[Leisler]

Does anyone know the unemployed rate for non govey workers, ie, the dreaded private sector?

If it is, say, 6.5, now. Overall, government and private, and since government doesn't, much, lay off people, that rate is more in private side of the economy.

Thus is it fair to say that unemployment is more like 13 percent in the private labor market?

The same thinking with foreclosures. Out side of some elected officials, could we say that most foreclosures are in the private sector?

If we started to look at the economy as two economies, the government and the private. I get the feeling that the powers that be, don't want this distinction made, even though they are forever talking about us all pulling together, all in one boat, even if we are in fact not. Anyone, Bueller?

[Leisler]

Or Nero.

[Leisler]

Well, it’s one way for one child policy that produced fifty million males with no chance of having a wife, of getting rid of them.

The US just went through its biggest boom,ever. And debts still rose. And now? And next year? Heck, state governments are going to be hitting Capital Hill doors like drunk sailors at a free whorehouse.

If this continues to....’de-leverage’...US Treasuries will be the financial life boat. All over the world, local currencies will turn to Zimbabwe. The demand to park money in Treasuries, and to get hold of dollars to make day to day purchases will keep T Bill yields low, and the dollar in demand.

So much sub components are made in China, that domestic assemblers will hit Congress not to do it. Congress might do a show trial item or two, and the Chinese will dance with a few items to save face with their people.

[ninonitti]

If this continues to....’de-leverage’...US Treasuries will be the financial life boat

What happens if China decides to take its $2 Trillion someplace else?

[ari-freedom]

if we have a trade war with china, we’ll have a real war with china. Unfortunately this will be pushed by the Lou Dobbs and Pat Buchanans on the right.

[fightinJAG]

Yes, I’m aware of all that. My question is: what is the practical point of trying to sort out or claim we are in or going into a Depression?

I don’t see one.

[Rutles4Ever]

Well, it’s one way for one child policy that produced fifty million males with no chance of having a wife, of getting rid of them.

Hence the evil of socialist gov't. It can never make good on its promises of economic utopia, so it's easier to just cull the herd, instead.

The US just went through its biggest boom,ever. And debts still rose. And now? And next year? Heck, state governments are going to be hitting Capital Hill doors like drunk sailors at a free whorehouse.

The boom WAS the result of debt - specifically 40:1 leveraging and fractional reserve banking. We've been getting paid with, spending, and charging money that does not exist, for years now. With limited resources, which state will balk first at bailing out California and their self-inflicted economic disaster? Get enough states in opposition - the ones who will be told they cannot be helped because California is too big to fail - and suddenly we start seeing fractures in the Union.

If this continues to....’de-leverage’...US Treasuries will be the financial life boat. All over the world, local currencies will turn to Zimbabwe. The demand to park money in Treasuries, and to get hold of dollars to make day to day purchases will keep T Bill yields low, and the dollar in demand.

Default spreads on gov't debt seem to be predicting otherwise. The Fed is quantitatively easing, so the cratering of bond yields seems to be a reaction to gov't intervention. As internal situations decay in various countries, they will be trying to raise dollars, not tie them up in treasuries, in my opinion. And if they have to park them anywhere, they'll be parked in commodities.

Congress might do a show trial item or two, and the Chinese will dance with a few items to save face with their people.

Starving people don't care about dog-and-pony shows. Show us the bread, in other words. The Chinese gov't cannot afford a countrywide military crackdown on rioting denizens. Their first order of business will be to feed the people, even if it comes at the cost of another country's economy.

[Lou L]

Does Obama really think that threatening the rich (who create jobs in the first place) is going to help our economic system?

[snip]

The best thing Obama could do is cut taxes permanently for all income levels, especially the rich since the top 10% pay 66% of the tax burden as it is. The cut corporate tax rates. After that, Mr. Obama, just stand back and watch how the system fixes itself.

All of that of course, under the assumption that Obama has the best interests in mind for all Americans.

If he does not, and only wants to take America to become a second-rate country, making good economic sense of his policies will be of little concern to him.

[gathersnomoss]

You get it, Lou.

[mywholebodyisaweapon]

You are so right, stevem!

It’s going to be grim when many of our self-appointed economist fellow Freepers figure out that we CAN have both a depression and runaway inflation at the same time. I think it takes a really talented government to bring that result about, but then Bush, Paulson, Bernanke, and Obama are really talented guys.

[slnk_rules]

I don’t understand. Every single recession we have had in the last 50 years has been an inflationary recession. Why are these people so intent on the idea that it can’t happen?

[Swiss]

I don’t buy the argument that Depressions are not self correcting. How then did we get out of the 1893 Depression?

I am going the predict that we will face an 1890’s type Depression rather than the 1930’s type of Depression.

http://eh.net/encyclopedia/article/whitten.panic.1893

[gitmogrunt]

"1-20-2009"

Depression declared over! Economy soars!

You must be a natural born psychic!!!

[mywholebodyisaweapon]

I think they’ve got something hard-wired into their brains that Keynes was God and that all economic activity is demand side.

I’m not sure Bush even got it early in his administration. I wish he had fought a little harder for “trickle-down,” since the “gush-up” that Obama is proposing is an expensive ticket to depression and hyperinflation. Can’t wait for his institutionalized supply-shocks to drive the final stake into our economy’s heart.

Bernanke has to be the worst Fed chairman in history. I don’t think he recognizes that Aggregate Supply even exists.

[RightWhale]

A depression is not self-correcting

It is fairly certain now that economists and historians make it all up on a daily basis.

[slnk_rules]

According to this chart, there has been NO correlation between deflation and recession. The fed in this chart divides the 1980 recession into two, and so you have one period that lasted until about the time Volcker raised interest rates and then another till he cut them. THAT period was deflationary. It could be argued that deflation resulted from the fed raising interest rates just as easily as from a recession, or from sunspot activity on Alpha Centauri.... I dunno. There does not seem to be any meaningful correlation to me.

I hope you don't mind me pinging two guys who will be fairly vicious critics of this idea into the discussion. If I am full of crap here, they will usually be happy to point out where and why they think so.