Recession or Depression? | http://www.thedeflationtimes.


5/10/09 6:50 PM

Abandon All Hope: Deflation, Financial Crisis, Credit Crisis, Subprime Crisis, Financial Crash, Bailout, Wall Street Crash, Foreclosures, Bank Failures, FDIC Bank Fails, Bank Bailouts, Depression. Protect Yourself: Elliott Wave, Top 100 Safest US Banks, Safe Banks, Tomorrow’s News Today.

Recession or Depression?

It may seem an odd time to be calling the current economic climate a developing depression, but we here at The Deflation Times do not believe mainstream economists are particularly good at predicting economic trends. The vast majority of mainstream economists and media did not see the credit crunch coming. We will let our track record speak for itself. During the Great Depression of the 1930's America's stock markets saw several bear market rallies. We firmly believe we are at the end of a bear market rally at this moment, and that all markets have just begun to turn downwards again. Bear market rallies during depressions are traps for the unaware. People think the worst is over and it's time to get back in. This desire to re-enter the market is at its greatest right before the rally ends, leaving many peoples savings open to yet another round of major deflation as markets plunge again, to new lows. Page 1 of 6

Recession or Depression? |

5/10/09 6:50 PM

A recession is defined by the National Bureau of Economic Research as a 'significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.' A depression has no official definition, at least not from the NBER. Unofficial definitions of economic depressions include a decline of GDP by more than 10%, or a decrease in economic activity that lasts for longer than three years. So, a depression is different from a recession in how bad it gets, and how long it lasts . One of the most commonly used lay definitions of an economic depression would be unemployment rates. The Great Depression saw unemployment peak at 24.9% in 1933, giving rise to images of jobless people lined up over many city blocks, looking for work. Today the picture is less clear, with official statistics widely understood to be less accurate than in the 1930's, unemployment in the United States may already be close to 20%, and climbing. So, by this basic and most common measure of how the economy affects people, we are in another Great Depression. Certainly, these figures are too large for this current financial crisis to be termed a recession. Another distinguishing feature between a recession and a depression is the cause of the financial downturn. Depressions are characterised by 'a bursting asset and credit bubble, a contraction in credit, and a decline in the general price level' according to Saul Eslake, chief economist at ANZ bank. Currently, the 'credit crunch' has been undoubtedly caused by a credit bubble, which burst, leading to a contraction in the supply of credit which the Fed is trying to loosen. So, by this definition too, we are in a depression, not a recession. The vast majority of economists were still predicting year upon year of economic growth, right up to the beginning of the 'credit crunch' in 2007. Even Ben Bernanke at the Federal Reserve was predicting in February 2006, that the US economy would expand for the following two years. There is one economist who did foresee the 'credit crunch' and resulting global economic mess. Robert Prechter wrote 'Conquer the Crash' in 2002. This book predicts in detail the events now unfolding. Most unsettling of all, it predicts that worse is yet to come. However, it helpfully outlines practical steps you can take to prepare yourself and minimize the harm to you and your family. Who would you rather listen to? Mainstream economists, like those at the Fed, who predicted the opposite of what has happened, or someone who's accurate record we will let speak for itself? ShareThis Posted by Mary Filed in The Economy | Edit Created: October 4th, 2009

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