Tuesday, December 15, 2009

Recovery, Recession Or Depression?

Of course, the answer depends on who's talking, but since this is Marko's Take, I'll weigh in as to my personal opinion.

Before we venture further, let's first review the difference between a "recession" and a "depression".  The standard definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.  A depression is any economic downturn where real GDP declines by more than 10%.  A recession is an economic downturn that is less severe.

Larry Summers, who formerly held the position of Treasury Secretary, is now the head of President Obama's National Economic Council.  Mr. Summers, whose credentials are exemplary, proclaimed yesterday that "everyone agrees that the recession is over"!  Mr. Summers, for some reason, didn't check with me, as I entirely and respectfully disagree!

Christina Romer, a member of the President's Council of Economic Advisers has a differerent view.  Mrs. Romer believes the country is still in a recession.  Apparently, Mr. Summers did not check with Mrs. Romer either!

John "Walter" Williams, who has a fantastic website called "Shadow Stats" (http://www.shadowstats.com/), has an entirely different point of view.  Dr. Williams believes that we are currently in a "double-dip depression".  According to HIS methodology for computing various economic statistics, in the fourth quarter of 2008 and first quarter of 2009, Gross Domestic Product fell by approximately 6% each.  Therefore, peak-to-trough, the criteria for a Depression has already been met.

At this time, as far as I'm concerned, I'm completely in sync with Dr. Williams, but I would add something further.  I've written recently about possible signs of a "recovery", however, this may only prove to be some sort of temporary lull.   I believe that we were in a depression, which ultimately may turn into a HYPER-INFLATIONARY one.  I believe that Dr. Williams would agree with this assessment as well, but he doesn't specifically say so in the article appearing on his home page.

In any event, I felt it important to distinguish between these terms and the various points of view on them.  I hope you find this piece informative and interesting.  As to finding it useful, well, honestly, the economy is beyond our control!  If you would like to weigh-in with your own "Take", please feel free to do so by leaving a comment below.

Marko's Take

P.S. The Producer Price Index was just released this morning.  It went up during the last month by 1.8%!

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