Economics Questions

Re: Recession, Depression, Panic, & Downturn

krazy kaju — Wed, 04 Mar 2009 00:10:54 GMT

In the 19th century, every single economic crisis was called a depression. Today, a depression is a contraction in the GDP of 10% or more per annum.

Re: Recession, Depression, Panic, & Downturn

bearing01 — Tue, 03 Mar 2009 18:08:19 GMT

Depression means that the structure of production and/or industry in the economy is distorted with respect to the demands of the consumers, who the products were produced for. A Depression or Recession comes about as a correction to this malinvestment in the economy, to get it back on the correct track.

The next question then would be why was there such a distortion in the economy? It is a result of creating credit out of thin air and having interest rates below the rate supported by peoples savings rate.

When a society is overburdened with debt then this restructuring of the industry can be very painful and have severe consequences for creditors. When companies have to lay people off there is a period of unemployment until they are hired in a more prosperous company that is not liquidating. If that unemployed individual has debt that he cannot keep payments on then he goes bankrupt. The Creditor suffers a loss and can go bankrupt as well. The severe problem we have today is a combination of a restructuring economy that has been distorted as well as an implosion of a huge amount of debt.

Since the 1970's when the Fed went off the gold standard they have been allowed to run the printing press without guilt. Everytime we've had a slight downturn or recess they just give the economy a shot in the arm to boost it up with a shot of inflation. This is just putting more debt into the system. Now the tank is overflowing with debt and no-one wants any more. People are instead trying to reduce consumption in order to save to pay down debt. This is making the economic restructuring occur faster and aggressively. The Federal Reserve however are trying everything they can to prevent the clensing of rot from the system. Now that people aren't borrowing anymore the Fed are printing money and directly buying stuff from the economy. They call it monetary easing. It's really just raw inflation. Inflation only creates even more future distortions in the economy.

Hard times come about for long periods of time during the economic restructuring process because of government intervention in the economy. It is these bailouts, monetary easing, expansion of government which leads to increased taxes or increased national debt that pulls the band-aid off slowly. Rather than pull it off quickly so we can hurry up & get back to work and life. People think that Gov't welfare and bailouts and make-work projects are helping the situation. It is not. It just drags out the correction process while preventing the healthy & prosperous industries (the ones with products in high demand) from expanding and hiring people to create real jobs.

Re: Recession, Depression, Panic, & Downturn

sirmonty — Tue, 03 Mar 2009 09:32:12 GMT

Marko:

While we are at this subject what does a depression mean anyway? Does it means we are becoming less prosperous, or just that we are becoming more prospreous much more slowly?

Depression means we are about to get a heaping dose of government administered Zoloft.

Re: Recession, Depression, Panic, & Downturn

Marko — Tue, 03 Mar 2009 08:58:02 GMT

While we are at this subject what does a depression mean anyway? Does it means we are becoming less prosperous, or just that we are becoming more prospreous much more slowly?

Re: Recession, Depression, Panic, & Downturn

Servius — Mon, 02 Mar 2009 17:10:57 GMT

Thank you all. That's what I thought.

Re: Recession, Depression, Panic, & Downturn

MatthewWilliam — Sat, 28 Feb 2009 04:45:43 GMT

krazy kaju:
For when the next sharp depression came along, in 1937-38, the economists simply refused to use the dread name, and came up with a new, much softer-sounding word: "recession."

As Robert Higgs put it: "Recessions don't sound so bad...everybody loves recess!"

Re: Recession, Depression, Panic, & Downturn

krazy kaju — Sat, 28 Feb 2009 03:08:32 GMT

From Murray Rothbard's Economic Depressions: Their Cause and Cure:

We live in a world of euphemism. Undertakers have become "morticians," press agents are now "public relations counsellors" and janitors have all been transformed into "superintendents." In every walk of life, plain facts have been wrapped in cloudy camouflage.

No less has this been true of economics. In the old days, we used to suffer nearly periodic economic crises, the sudden onset of which was called a "panic," and the lingering trough period after the panic was called "depression."

The most famous depression in modern times, of course, was the one that began in a typical financial panic in 1929 and lasted until the advent of World War II. After the disaster of 1929, economists and politicians resolved that this must never happen again. The easiest way of succeeding at this resolve was, simply to define "depressions" out of existence. From that point on, America was to suffer no further depressions. For when the next sharp depression came along, in 1937-38, the economists simply refused to use the dread name, and came up with a new, much softer-sounding word: "recession." From that point on, we have been through quite a few recessions, but not a single depression.

But pretty soon the word "recession" also became too harsh for the delicate sensibilities of the American public. It now seems that we had our last recession in 1957-58. For since then, we have only had "downturns," or, even better, "slowdowns," or "sidewise movements." So be of good cheer; from now on, depressions and even recessions have been outlawed by the semantic fiat of economists; from now on, the worst that can possibly happen to us are "slowdowns." Such are the wonders of the "New Economics."

Re: Recession, Depression, Panic, & Downturn

bearing01 — Sat, 28 Feb 2009 02:50:36 GMT

yes,

Panics were renamed depressions. Then depressions were renamed recessions. Downturn or sideways-waffle or slowdown are all euphemisms for a economic crisis. Each following one trying to make the situation sound more acceptable than the previous.

And all the crisis are round about caused by the same thing, every time. Too much debt, credit creation, inflation and artifically reduced interest rates.

Recession, Depression, Panic, & Downturn

Servius — Fri, 27 Feb 2009 23:25:57 GMT

I told someone is a conversation today these are all terms for the same thing. Am I correct?