Whats the definition of depression? I read that its a decline of >=10% in GDP. But over what period? Recession is when the GDP declines for 2 or more quarters.
It’s however the NBER defines it, but the textbook definitions are 2q’s for a recession and 4q’s for a depression.
when you lose your job (recessions when someone else loses theirs)
Is that correct? Four negative quarters = depression? That doesn’t sound right to me. If so, we’re about to enter a depression this year! I think cumulative loss of 10% of GDP would be the minimum criteria. I think a loss of 20% would be better. That happened in the 30’s in a lot of major economies and has happened multiple times over the last century in all sorts of countries. Several times in Argentina I believe.
I meant a 10% reduction over 4q’s.
de . pres . sion [di-presh-uhn] –noun 1. the act of depressing. 2. the state of being depressed. 3. a depressed or sunken place or part; an area lower than the surrounding surface. 4. sadness; gloom; dejection. 5. Psychiatry. a condition of general emotional dejection and withdrawal; sadness greater and more prolonged than that warranted by any objective reason. Compare clinical depression. 6. dullness or inactivity, as of trade. 7. Economics. a period during which business, employment, and stock-market values decline severely or remain at a very low level of activity. 8. the Depression. Great Depression. 9. Pathology. a low state of vital powers or functional activity. 10. Astronomy. the angular distance of a celestial body below the horizon; negative altitude. 11. Surveying. the angle between the line from an observer or instrument to an object below either of them and a horizontal line. 12. Physical Geography. an area completely or mostly surrounded by higher land, ordinarily having interior drainage and not conforming to the valley of a single stream. 13. Meteorology. an area of low atmospheric pressure.
Joke first. Recession - your neighbor loses his job. Depression - you lose your job. If real GDP declines by more than 10%-20%, it is assumed to be a depression. Loosely defined, two negative quarters of GDP is considered recession (but NBER actually defines it). US had experienced only one depression in 1900s. That is between Aug 1929 and Apr 1933, real GDP declined by 33%. During the 4 year recession real GDP fell by 8.6% in 1930, 6.4% in 1931, 13% in 1932 and 1.3% in 1933. The good news is the next 3 years (1934,35 and 36) US had close to 10% real GDP growth. After that the ugliest recession (3year) was between 1945 and 1947, real GDP fell by 1.1%, 11% and 0.9%. However the economy did not witness double digit GDP growth after this recession. The second bad recession (2 year) was between 1974 and 1975, real GDP fell by 0.5% and 0.2%. There was no spectacular recovery followed this recession also. The third bad recession (2 bad years in a 3 year period) was between 1980 and 1982, real GDP fell by 0.2% in 1980 and 1.9% in 1982. The fourth bad was in 1991, a single year recession with a real GDP decline of 0.2%. 2001 and 2008, even though were bad, did not have negative GDP. So all in all 2008 is a bad year, but it is not reflected in the “Annual” GDP numbers.
So Roubini said that a depression is quite possible. I believe the guy.
btw, i think a merrill economist is saying we’re in a depression already and it’s going to continue for a while. if enough other economists start saying the same thing, i’m going to take it as a contrary indicator and go on a buying spree.
its like contra-contrarian. remember when everyone was saying things are rosy and the future bright? now everyone is saying we are dead or dying. might as well buy that stock and book a ticket to vegas.
cfa_mba_caia Wrote: ------------------------------------------------------- > Joke first. > Recession - your neighbor loses his job. > Depression - you lose your job. > I hate this joke. Most over used expression, why not just open with the good one about the chicken crossing the road?
a merrill (chief) economist is david rosenberg and defines depression as: http://base.googlehosted.com/base_media?q=hand-2050195680450736211&size=8 Not your father’s recession, but maybe your grandfather’s In our marketing tour through Europe last week, we brought along our new chart package entitled “Not your father’s recession, but maybe your grandfather’s”. Looking at the youthful demographics that characterize today’s money management industry, we should have probably gone with “great-grandfather’s” instead. How is a depression defined? It shouldn’t come as any big surprise that with such a provocative title, we would be saddled with questions as to how an economic depression is even defined. Of course, most portfolio managers still don’t know that a recession is not defined as back-to-back quarters of negative real GDP prints (which we had neither in 2002 nor 2008) but instead the timing of the peaks in real sales activity, employment, industrial production and organic personal income growth. We are likely enduring a depression today As for depressions, there is no official definition, except to say that they have existed in the past. There were no fewer than four in the nineteenth century, one in the twentieth century, and we are very likely enduring another one today. Though this current one is muted by the fact that most countries have an elaborate social safety net (deposit insurance, unemployment benefits, welfare, and socialized health care). Depressions can last anywhere from three to seven years Depressions are basically long recessions – they can last anywhere from three to seven years, while historically cyclical recessions last 18 months – and tend to follow years of leveraged prosperity of Gatsby-like proportions. Considering that in this most recent leveraged cycle from 2002-07, we reached a point where a record 40% of corporate profits were derived from financial activities, where household debt relative to income and assets surged to unprecedented levels and the personal savings rate briefly went negative at the height of the housing bubble, it is safe to say the down-cycle we are currently experiencing did indeed follow a classic elongated period of leveraged prosperity. It is now reverting to the mean.
Regarding being contrarian, above: Being contrarian is great, if you get the timing just right. Being a trend follower is great, if you’re not too bad with the timing.
Definition from one of our hf managers: A recession is a managed contraction in real GDP, brought on by a tight central bank policy (usually to fight inflation), that ends when the central bank eases. Interest rate cuts have the same effects as price cuts: they lower the cost of items bought on credit, which stimulates demand. Interest rate cuts also reduce debt service costs and raise prices of income producing assets (like stocks, bonds and real estate) by lowering the interest rate used to discount their expected future cash flows. A deflationary depression is an unmanaged economic contraction in which monetary policy ceases to work, generally because interest rates have fallen close to 0%, making meaningful interest rate cuts impossible. As deflation intensifies, usually at an accelerated pace because there are no interest rate cuts to stimulate demand and produce debt relief, real interest rates rise and investment asset prices are marked down. They are marked down because the projected cash flows fall faster than the discount rate used to calculate their present values. In recessions there is debt relief while in depressions there is debt reduction.
there’s been plenty of coverage of the definitions of recession and depression recently - so I don’t want to add to the confusion… but: A few things you guys are forgetting: 1. there is no formal definition of either term - reporters want to simplify things so they latch on to the 2 consecutive qtrs of negative real GDP growth - too simplistic, but it was used to describe the many recessions in the 50s to the 80s. Then they changed it to 2 consecutive qtrs of negative year on year real GDP to get around the volatilie qtrly GDP numbers 2. The big thing missing in most simplistic definitions is unemployment. This is the factor which affects the man on the street - because that’s really where it is felt most. + confidence drives spending, which drives investment, which drives employment. Fears about possibly losing your job kills confidence/spending/investment/jobs/growth. So many economists are starting to add a definition of unemployment in the recession/depression definitions - eg a rise in unemployment rate of at least 1.5% over a 12 month period, or “Depression” might be a rise of say 5% over prolonged period (eg. 1-2 years) etc. Don’t forget that unemployment during 1930-1935 was at least 25%-30% in US/UK/Europe. (most countries only measured unemployment among union members so the total unemployment numbers were guesses). 3. Definitions tend to focus on REAL gdp. But depressions often involve price deflation, so nominal prices/output are falling dramatically, which causes further strife - debts rise in real terms, banks call in loans, bankruptcies explode, prices fall further, unemployment sky-rockets, etc. So looking at nominal GDP may be more revealing. 4. historically, the term “recession” only appeared in the past 50 years. Before that all big slowdowns were called “depressions” or “slumps” which were mostly interchangable terms. There were some very serious global depressions in 1840s, 1890s - probably most other “depressions” were just “recessions” Dimson, Marsh, Staunton has a good rundown of country-by-country and global growth over the past 1,000 years ps. There’s no way we’ll get anywhere near as serious as the 1930s. To even suggest it is an insult to anyone who lived through the 30s. Ask your grandparents what it was really like. This time around, most people will have to put off buying a new car for a year or two, or cut back from a V8 to a 6, or cut back from having 3 color TVs to 2, or holiday at the beach instead of a big trip overseas, etc. Big deal! This ain’t no depression! When millions of people wander from town to town for years searching for their next meal - THAT’s a depression. By the time we figure out whether we’re really in a “depression” the economy will be back on track and we’ll wonder what all the fuss was about!
I agree that we’re not at 1930s levels yet, but I don’t think it’s out of the question that people might be wandering from town to down looking for work a year or two down the line. I sure hope not, but I don’t think it’s out of the question. One big question is what would that work actually be that people think they’d find. The US simply doesn’t seem to produce much anymore, other than food and some raw materials.
why “produce” when you can borrow and spend? That’s what governments are pleading for consumers to do. Notice that the general public are called “consumers” and not “producers”. Consuming is their primary economic role. Let some other sucker pruduce - that’s lower down on the food chain. Consuming is what it’s all about …hundreds of thousands of BANKERS wandering from town to town searching for their next meal - that’s what I wanna see…unfortunately nobody will join up in sympathy, they’ll just use them for moving target practice…
I’d produce porn.
Recession…no line up at Starbucks. Depression…no line up at Tim Hortons. Willy
Recession: surfing p0rn on the internet instead of going to strip clubs Depression: watching scramble p0rn on your parents’ tv