Depression

[Whitlock]

When does a recession become a depression
Most people I know in the construction fields are out of work and some have been since the beginning of summer.
This is when they should of been working O.T.
To some of these people they are in a depression. Some even to the point of begging to get by
I guy I worked with a few years back was out pan handling today just to feed his kids

So my question is how will we know when we are in a depression?

[MountainDon]

A recession is when your neighbor loses his job.
A depression is when you lose your job.



I've read that a rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

muldoon may have something more understandable to add.

[muldoon]

I think Don has the true definition correct in that it relates to decreasing GNP or GDP, and using that definition we are still far from it. 

However, there are two things I would point out on this. 

America is still a very prosperous nation, we have a long long way to fall in order to get to depression level.  I dont think the majority of people have any idea what life is like in other countries, notably 3rd world countries.  Central and south America have significant problems, even Mexico to some extent - where simply getting food is a major part of every working day.  The separation between rich and poor is much more extreme, and they are not even considered depressed economies. 

That being said, some parts of the us have been hit much harder than others.  This economic downturn is not evenly disbursed and neither was the last one.  It could be said that Michigan has been in depression for a decade; it could be said that Ohio and Indiana may be close to one now.  Florida and California are certainly hurting in many areas, as in Nevada and others but there is still work and services and consumables to be had at every turn. 

How will we know when? 
were currently at 6% unemployment, the 1920s depression was somewhere around 30%.  That would be my biggest indicator for now. 

[Squirl]

I think one of the key indicators of economic health, unemployment, is a deceiving indicator.  It only counts people looking for a job for the first 6 months.  If someone can't find a job for 6 months, they are no longer unemployed.  Now when you look at all the people in Real Estate, Finance, and Construction who lost their job early this year when the housing bubble burst, if they haven't found a job yet, they are still considered no longer unemployed. So if a recession pushes us into a steady decline and it lasts a long time, and people can't find a job, they will be off unemployment soon and the indicator loses it's value. 

The unemployment figure also loses on what jobs are replaced with what.  Now if you get laid off from a high paying manufacturing or union job and you all you can get is a minimum wage service job as a replacement, you are still employed and there is low unemployment but not a healthy economy. 

GDP and GNP are decent indicators but not the best in my book.  They can keep growing because of a small percentage of society, while everyone else is unemployed.  The third world nation example is a great one.  The GDP and GNP of many of these nations has grown significantly but most people in the country live in total poverty.

My personal preference in indicators is the median household income.  First, it is adjusted for inflation so you can get a good picture over time.  Second it accounts for the majority of Americans.  I like this average because as one of my economics books put it, if Bill Gates walks into a room full of homeless people on average they are all billionaires, but if you took the median income, it would show that a majority are not doing well.

[MountainDon]

I have a feeling that some readers are going to be confused my "average" and "median". So in an effort to help them let's expand on Bill Gates walking into a room...

Suppose 19 workers and 1 billionaire are in a room. Everyone removes all money from their pockets and puts it on a table. Each worker puts $5 on the table; the billionaire puts $1 billion there.

The total is then $1,000,000,095. If that money is divided equally among the 20 people, each gets $50,000,004.75. That amount is the average amount of money that the 20 people brought into the room.

But the median amount is $5, since one may divide the group into two groups of 10 people each, and say that everyone in the first group brought in no more than $5, and each person in the second group brought in no less than $5. In a sense, the median is the amount that the typical person brought in. By contrast, the average is not at all typical, since nobody in the room brought in an amount approximating $50,000,004.75


I think the bottom line here is that, today, we are not in a depression.

[desdawg]

I personally have been pretty depressed since the recession began. But I too think we are still quite a distance from the finish line. Sad but true. I don't think there will be a miracle cure for so many years of what has transpired. I hear about it every day from business people in my community. The Realtors and Title Companies here are busy cleaning up the excess inventory of homes. My Insurance agent seems to be busy. Everyone else is hurting. I am too housing oriented. I would like to see it all settle out so I can figure out what I own and what it is worth. I used to have a fair idea. Now I am in a state of LIMBO. Add to that a national election with two presidential candidates who don't seem to have a real grasp of what it is like out here. Even the local candidates seem to live in another world and aren't seemingly in touch with what it is really like in the trenches. They need some personal experience.

[glenn kangiser]

Most politicians are not people, des.

[peternap]

Don's definition is textbook correct. It doesn't matter though. Definitions are for historians. I do think we're a lot closer than it looks because the numbers are skewed.

Everything is positioning itself for something to happen. I just wish I knew what.
One thing I am watching very closely is the amount of money paid into the state budgets by the federal programs. When they cut that by say 60%, the states will pull away from the federal mindset.

One thing muldoon said is interesting. He said Americans don't know what it's like in 3rd world countries. That's not exactly true. There are two America's. The shadow America is a 3rd world. You have to go into Appalachia or into the deep inner cities to see it though. Ironically, they will be the ones least effected by a Depression. Falling off the ladder doesn't hurt if your already laying on the ground. 

[glenn kangiser]

I am laying in the ground - every night... sitting under it now --- I should be good...